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Prisoners' Dilemma

1. Briefly explain whether or not the Prisoners' Dilemma has a first-mover advantage.

2. Briefly discuss the rationale for an insurance company including a deductible on a typical policy.

3. Consider sales taxes. If the goal of government is to raise tax revenue when imposing such taxes, which category of goods should the government target?

On the other hand, if the goal of government is to reduce consumption of certain goods by taxing them, which category of goods should the government target?

Provide an example of a good from each category. Your examples may come from any nation.

4. Compare a market which is controlled by a single price monopolist to a perfectly competitive market. Address as many issues as you can in as much detail as you can.

Solution Preview

1. The prisoner's dilema doesn't have a first move advantge because regardless of what the other person does, the best strategy is to confess. Even if one prisoner knew what the other has done, that first prisoner would be better off confessing.

2. An insurance company exists to sell security to its clients. It assumes the risk of an accident at a price that allows it to make a profit given the probability set for accidents. Clients pay to ensure that if anything happens, their loss will not be as significant. A deductible ensure that the client has ...

Solution Summary

Prisoners' Dilemma is explicated for microeconomic.

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