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Which of the following examples is an adverse-selection problem and which is a moral hazard incentive problem? Explain why. In each case, give one method that the firm might use to reduce the problem.
a. A Grand Forks restaurant wants to buy a used car for deliveries, but is afraid of buying a lemon.
b. A bar decides to offer an all-you-can-drink promotion that is sold for a fixed price. The bar discovers that the customers for this promotion are not its usual clientele. Instead, the customers tend be politicians who consume an amazing amount of liquor. The bar loses money on the promotion.
c. A car wash owner hires a manager who promises to work long hours. When the owner is out of town, the manager goes home early. This action results in lost profits for the firm.
d. The CEO of Best Buy takes actions that reduce the value of Best Buy stock but increase his utility.
e. Jenna buys a used Playstation3 from a classmate. She soon discovers it doesn't play movie or game disks and stops playing games after 15 to 20 minutes.
It has been argued that many of the problems with negative externalities - such as pollution, or the "tragedy of the commons" - could be better solved if there were clearly defined, protected and enforced property rights.
Pharmaceutical drugs have an inelastic demand, and computers have an elastic demand. Suppose that technological advance doubles the supply of both products (that is, the quantity supplied at each price is twice what it was).
A hotel owner, having heard that new hotels consider to open in area, says, We have too many hotels in this town already. Statistics show that vacancy rates average 20% on any given night.
Analyse the impact of an increase in the price of crops and a (proportionately smaller) decrease in the price of fuel on a low income person who spends most of her income on food (derived from crops).
Find the total product, average product and marginal product for integer values of L from 1 to 9. Plot the total product on a graph and the average and marginal product on another as shown in class.
Suppose a monopolist producing Q units of output faces the demand curve P =20 -Q. Its total cost when producing Q units of output is TC = F + Q2, where F is a fixed cost. The marginal cost is MC = 2Q. a) For what values of F can a profit-maximizing..
What factors can contribute to unemployment and how can technology lead to greater unemployment, or is it a benefit to the economy?
Decribe how the Bank of Canada can affect interest rates and money supply in Canada. Be specific about the tools that are available to the Bank for such purposes.
What is the legislation/policy that will be analyzed in this paper and what is the problem/issue that this legislation attempts to address?
Discuss all of the Pros and Cons of making the decision to buy a new car and we require to consider about macro & microeconomics and any other psychological, sociological or business concepts that may affect the decision.
A monopolist firm faces the following cost curve: C(Q) = 10Q + 300, where Q is the output produced. The demand for its product is given by P = 50 - .
1. What do you think will be the basic problem of financing Social Security in the next 25 to 30 years 2. What would be the benefits of an open, free market for human organs 3. What do you think of a recommendation to privatize Social Security
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