Homework Answers
C) the outcome is separating equilibrium.
In order to overcome problem of adverse selection, signaling is used by which one side of market provide information to the other side of market. For example; Plum owners can offer warranty which separates seller from other sellers and this type of signaling is called separating equilibrium.
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When dealers provide warranties in a used-car market OA. the outcome is inefficient B. the outcome...
When used-car dealers signal the quality of a used car with a warranty, _______. A. it...
When used-car dealers signal the quality of a used car with a warranty, _______. A. it is not rational to believe the signal because some used-car dealers are crooked B. the price of a lemon rises above the price of a good used car because warranty costs on lemons are greater than warranty costs on good used cars C. the demand for lemons is eliminated D. buyers believe the signal because the cost of a false signal is high
Warranties work as signals in the used car market because _______. A. buyers want to believe...
Warranties work as signals in the used car market because _______. A. buyers want to believe they're getting a good deal B. all car dealers are more interested in their customers than in their own profit C. buyers are not sophisticated enough to distinguish an honest dealer from a dishonest one D. a dealer who sells a lemon with a warranty ends up paying a big repair bill, so dealers are careful to avoid selling lemons The principle of ______...
Read Eye on the Market for Used Cars, and then explain how a warranty signals that...
Read Eye on the Market for Used Cars, and then explain how a warranty signals that a car isn't a lemon and why it is in a used-car dealer's self-interest to offer a warranty. A warranty signals that a car isn't a lemon because A. giving warranties on lemons results in dealers bearing a high cost of repair O B. "lemon laws" require dealers to honor warranties O C. a warranty creates asymmetric information O D. private sellers, who sell...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
26. When intervention is needed to resolve negative externalities, economists typically favour market based mechanisms over...
26. When intervention is needed to resolve negative externalities, economists typically favour market based mechanisms over command and control approaches because: (a) the market mechanism always produces an inefficient allocation of resources. (b) governments enforcing regulations make inefficient choices. (c) private firms allocate resources more efficiently than governments in situations where negative externalities exist. (d) countries with governments using command and control policies have always been shown to not produce the best outcome. (e) this addresses the problem of negative...
Which of the following is not true of adverse selection? It occurs in the used-car market...
Which of the following is not true of adverse selection? It occurs in the used-car market but not in the market for insurance. It can result when one of the parties in a transaction has little information about the quality of the goods involved. It drives out the high-quality products and only the low-quality products are left in a market. It can cause the quality of the goods traded to decline if quality detection costs are high. It can be...
Market signals are O A. used to distinguish between high and low quality and help correct...
Market signals are O A. used to distinguish between high and low quality and help correct the adverse selection problem. O B. actions taken by buyers and sellers to communicate quality in the presence of perfect information. O c. only strong if obtaining the signal is more costly for individuals with valued traits than for those with non-valued traits. O D. used to differentiate those who will drive equally carefully whether or not they have auto insurance from those who...
What's the answer for both Qs There are many buyers who value high-quality used cars at...
What's the answer for both Qs
There are many buyers who value high-quality used cars at the full-information market price of p, and lemons at P2. There are a limited number of potential sellers who value high-quality cars at V1 spand lemons at V2 =p2. Everyone is risk neutral. The share of lemons among all the used cars that might potentially be sold is 0. Assume P4 > P2, V7 > V2. Further, suppose that the buyers incur a transaction...
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium...
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically because: Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers. The opportunity cost of...
Competitive market or monopoly for both drop down menus. 5. Monopoly outcome versus competition outcome Consider...
Competitive market or monopoly for both drop down
menus.
5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (S MC) curves in the market for...
Read Eye on the Market for Used Cars, and then explain how a warranty signals that a car isn't a lemon and why it is in a used-car dealer's self-interest to offer a warranty. A warranty signals that a car isn't a lemon because A. giving warranties on lemons results in dealers bearing a high cost of repair O B. "lemon laws" require dealers to honor warranties O C. a warranty creates asymmetric information O D. private sellers, who sell...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
Market signals are O A. used to distinguish between high and low quality and help correct the adverse selection problem. O B. actions taken by buyers and sellers to communicate quality in the presence of perfect information. O c. only strong if obtaining the signal is more costly for individuals with valued traits than for those with non-valued traits. O D. used to differentiate those who will drive equally carefully whether or not they have auto insurance from those who...
What's the answer for both Qs
There are many buyers who value high-quality used cars at the full-information market price of p, and lemons at P2. There are a limited number of potential sellers who value high-quality cars at V1 spand lemons at V2 =p2. Everyone is risk neutral. The share of lemons among all the used cars that might potentially be sold is 0. Assume P4 > P2, V7 > V2. Further, suppose that the buyers incur a transaction...
9. The pricing system Consider the market for hamburgers in an economy where the market equilibrium is characterized by a quantity of hamburgers of 50 million and a price of $5.00 per hamburger. Suppose that currently 80 million hamburgers are being produced and sold at a price of $2.50. This outcome in the market for hamburgers is economically because: Some hamburgers produced incur opportunity costs of production that exceed their value or marginal benefit to consumers. The opportunity cost of...
Competitive market or monopoly for both drop down
menus.
5. Monopoly outcome versus competition outcome Consider the daily market for hot dogs in a small city. Suppose that this market is in long-run competitive equilibrium with many hot dog stands in the city, each one selling the same kind of hot dogs. Therefore, each vendor is a price taker and possesses no market power. The following graph shows the demand (D) and supply (S MC) curves in the market for...
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