Exam 17: Behavioral Economics

Return to the market for cigarettes from the previous question. What per-unit tax could the government levy to eliminate the deadweight loss from the behavioral bias?

Return to the market for cigarettes from the previous questions. Suppose the government implements the tax you found in the previous question. But suppose the government is making a mistake. The true demand curve is in fact ,and this is not a result of any behavioral bias. Compute the deadweight loss of the government's tax policy.

Consider the same ultimatum game as in the previous questions but consider yet new preferences reflecting envy. In particular,now assume players get 1 util per dollar earned. That is all for the player who earns at least as much as the other. The player who earns strictly less than the other loses 1 util for each dollar difference. Which of the following is an offer that arises in a subgame-perfect equilibrium with these preferences?