# Suppose that 400 people are choosing between Action X and Action Y. The relative payoffs of the two.

Suppose that 400 people are choosing between Action X and

Action Y. The relative payoffs of the two actions depend on how many of the 400

people choose Action X and how many choose Action Y. The payoffs are as shown

in the following diagram, but the vertical axis is not labeled, so you do not

know whether the lines show the benefits or the costs of the two actions.

(a) You are told that the outcome in which 200 people

choose Action X is an unstable equilibrium. If 100 people are currently choosing

Action X, would you expect the number of people choosing X to increase or

decrease over time? Why?

(b) For the graph to be consistent with the behavior that

you described in part (a), should the lines be labeled as indicating the costs

or benefits of Action X and Action Y? Explain your answer.