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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.
Suppose that rich countries surprisingly commit to much higher official aid, to be maintained for several decades. What would be the effect of such aid on?
Draw a correctly labeled loanable funds graph that shows what happens to real interest rates.
Describe the Soviet Rapid Development Model
Give the utility function U(x, y) = (x-4) 1/2 (y-2)- 1/2 , what is the minimum income needed to ensure positive utility?
After her final exam this semester, Sylvia must drive from her school in Philadelphia to her home in upstate New York-What are Sylvia's expected .ne, expected wealth, and expected utility if she travels through PA?
In the text we mentioned how Levi Strauss price discriminates between the European and American markets. This question is designed to help you analyze this situation.
Compute total revenue, marginal revenue, total cost and profit at each quantity. What quantity would a profit-maximizing publisher choose? What price would it charge?
Consider the problem of the book assuming that the utility is Cobb-Douglas (U (C, l) = C α l β )
Assume that there are two power generating plants that emit SO 2 (sulphur dioxide). In the absence of regulation they each emit 10 tons of pollution per month.
The ten firms have banded together to form a cartel, and the cartel sets the monopoly price. The cartel agreement limits each firm to an output of one-tenth of the total amount demanded at the cartel price.
Suppose in country Triniland employers are required to pay overtime at 50% above the normal wage rate for workers who work beyond 8 hours a day.
Illustrate a supply or demand curve shift for the following article. The price of oil fell on Monday, January 12, 2009 as the weak economy has undermined oil demand. Light, sweet crude for February delivery fell $3.24 or 7.9%, to $37.59 a barrel.
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