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1. Bicycle Insurance and Information Asymmetry
If bicycle owners do not know whether they are high-or low-risk consumers, is there an adverse selection problem?
2. Suppose that every driver faces a 1% probability of an automobile accident every year. An accident will, on average, cost each driver $10,000. Suppose there are two types of individuals: those with $60,000 in the bank and those with $5,000 in the bank. Assume that individuals with $5,000 in the bank declare bankruptcy if they get in an accident. In bankruptcy, creditors receive only what individuals have in the bank. What is the actuarially fair price of insurance? What price are individuals with $5,000 in the bank willing to pay for the insurance? Will those with $5,000 in the bank voluntarily purchase insurance?
3. Describe a moral hazard problem your company is facing. What is the source of the asymmetric information? Who is the less informed party? Are there any wealth-creating transactions not consummated as a result of the asymmetric information? If so, could you consummate them? Compute the profit consequences of any advice.
In the short run, company that seek to maximize their market share will tend to charge lower price for their products than firms that seek to maximize profit.
In 1982 the Johnson & Johnson Company credo was suddenly taken to task when an unknown quantity of Tylenol capsules on the shelves of one or more drug store(s) in Chicago wa
A restaurant wants an app that calculates a table's bill. The app should display all the menu items from Fig. 15.53 in four ComboBoxes. Each ComboBox should contain a catego
Ceteris paribus, show graphically and explain the effect of an increase in Australian government budget deficits that increase Australian interest rate of euros for Australi
One senior economist thinks it is likely that the interest rate would rise in the second half of the year. Discuss the simple mechanism from an increase cash rate in the off
Assume x and y are the only two goods a person consumes. If after a rise in p x , the quantity demanded of y decreases, one could say
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Suppose that the banking system of Upperland has excess reserves of $50 million, the desired reserve ratio is 25 percent, and the currency drain ratio is 50 percent. By how
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