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An insurance market may fail to exist due to asymmetric information and adverse selection that results from it (buyers don’t know the repair risks associated with the seller’s car, just like insurers may not know the “repair” risks associated with the person who is requesting insurance from them). Suppose there are four cars for sale in a used car market. They have quality 0.25, 1, 1.5, and 2. The car seller values the car at $10Q (i.e. car of quality 0.25, 1, 1.5 and 2 are valued at $2.50, $10, $15 and $20). The car buyer values the car at $15Q (i.e. values the car of quality 0.25, 1, 1.5 and 2 at $3.75, $15, $22.50 and $30).
Now the state law changes and you are allowed to take the car for quality inspection from the exchange, and there is not just one unique price now at which transactions have to occur—instead, any car buyer and seller who meet at the exchange can negotiate a price after the independent mechanic verifies quality. What transactions are likely to occur now, and at what price ranges for each car?
In Krugman and Obstfeld's International Economics, 8e, Chapter 16, an involved argument is given showing that a permanent fiscal expansion will not affect output even in the short run. It seems to me that this is a saddle point stability argument in ..
A committee of 4 has to be chosen from 12 representatives, of whom 8 are men and 4 are women. If selection is random what is the probability that.
Find the monopolist's profit-maximizing output and price - calculate the monopolist's profit and what is the Lerner Index for this industry?
Become an advocate for either the consumer or the industry. Prepare an argument explaining the major reasons why you support either the consumer or the industry.
An industry consists of three firms with sales of $175,000, $555,000, and $205,000. Calculate the Herfindahl-Hirschman index (HHI). Instruction: Round to the nearest integer. Calculate the four-firm concentration ratio (C4).
How is it that higher tax rate can increase tax revenue in some cases, but a higher tax rate can decrease tax revenue in other cases? Relate this to the price elasticity of demand. (Excise Taxes)
Illustrate what are the factors that affect the supply and demand of the good or service. Who benefits more from a transaction of the good or service, the buyer or the seller. Generally speaking, why do people enter into trade.
When a nation's currency appreciates, it purchases ______ units of a foreign currency and it is said to _______ .
Who is the winners and losers from using corn to produce ethanol (gasoline)? Identify some of the unintended consequences of using corn to produce ethanol (gasoline).
Explain the main channels through which the Fed can influence economic activity. Which theory has provided a better model, Classical or Keynesian, when it comes to prediciting how money affects the macro economy? Explain
change if buyers pay $8 every unit to the intermediary but sellers offer to rebate part of that expense to buyers.
Bill Simmons is the manager of a small restaurant and must decide how much money he owes his suppliers. The best way for Bill to approach this as a critical thinker is to
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