Problem 11
A group of people is offered two scenarios and asked which they would prefer: (A) a 3 percent wage decrease in a world with no inflation, or (B) a 3 percent wage increase in a world with 6 percent inflation. [LO 23.5] a. What is the increase or decrease in the real wage in option \(\mathrm{A}\) ? What about in option \(\mathrm{B}\) ? b. Knowing what you know about framing and loss aversion, which option do you expect more people to prefer? c. In light of your answer to \(b\), if you were an employer trying to cut real labor costs, would you prefer to have some inflation or no inflation in the economy?
Problem 12
Choose the statement that people are more likely to choose based on the framing of the choice. \(\left[\mathrm{LO}_{23} .5\right]\) a. Stock investment: i. Invest in a stock with low uncertainty of return. ii. Invest in a stock with high certainty of return. b. Car purchase: i. Buy a car that costs \(\$ 20,000,\) which is \(\$ 5,000\) cheaper than the next level for that maker. ii. Buy a car that costs \(\$ 20,000,\) which is \(\$ 5,000\) more expensive than the lower level for that maker. c. Movie choice: i. Go to the movie that 100 out of 150 people give a five-star rating. ii. Go to the move that 50 out of 150 people give less than a five-star rating. d. Choice of college class: i. Take a class in which 50 percent of students get an \(A\). ii. Take a class in which 50 percent of students don'\operatorname{tg} e t ~ a n ~ \(\mathrm{A}\).
