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A risk-neutral consumer is deciding whether to purchase a homogeneous product from one of two firms. One firm produces an unreliable product, and the other a reliable product. At the time of the sale, the consumer is unable to distinguish between the two firms products. From the consumers perspective, there is an equal chance that a given firms product is reliable or unreliable. The maximum amount this consumer will pay for an unreliable product is $0, while she will pay $50 for a reliable product.
a. Given this uncertainty, what is the most this consumer will pay to purchase one unit of this product?
b. How much will this consumer be willing to pay for the product if the firm offering the reliable product includes warranty that will protect the consumer? Explain.
Assume that the exchange rate between the Canadian dollar and the Euro is 2 Euros per Canadian dollar.
State with brief reasons whether the following statements are true, false, or uncertain.
Explain how the Central Bank can set the nominal interest rate in the money market. In addition, explain how it can use expansionary monetary policy to boost GDP if the economy is in a recession.
Suppose a frost kills a large portion of an orange crop, with a resulting higher price of oranges. It has been said that such an increase in price benefits no one since it cannot elicit a supply response; the higher price, it is said, simply "line..
What is the unemployment rate? What will the unemployment rate be if the unemployed increases to 7 million and 3 million individuals become discouraged workers?
Given table of data comprising real GDP and its components over a number of years, compute compound annual percentage changes in real GDP (economic growth) and compute the shares in real GDP of consumption.
In the country A, all wage contracts are indexed to inflation. That is, each month wages are adjusted to reflect increases in cost of living as reflected in changes in price level. Explain answer with aggregate supply and aggregate demand curves.
Assume that the soft coal industry is a competitive industry and it is in long run equilibrium. Now assume that the firms in the industry form a cartel.
The following information describes a hypothetical economy (assume all numbers are in billion if necessary) Determine the value of the MPC of this economy?
For each of the following concepts provide a definition, a complete explanation as to their significance, and a practical example.
What elasticity of demand did the Village Administrator seem to assume here in his prediction for 1970- 1971? Compute the approximate elasticity of demand (round off, two decimal places is close enough).
Explain why user cost, or scarcity rent, arises in the intertemporal allocation of a depletable resource such as minerals, and some types of energy and aquifer water resources.
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