Exam 9: Imperfect Information, External Benefits, and External Costs

Figure 9.3 -Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. Initially buyers believe that 50% of used refrigerators in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer refrigerators are sold in equilibrium?

Table 9.2 -Table 9.2 represents 3 markets for used guitars. Which of the markets in Table 9.2 are NOT in equilibrium?

Figure 9.4 -Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. If buyers believe that all of used digital cameras in the market are lemons (low quality), what number of used digital cameras sold will actually be lemons?

Which of the following is NOT an example of moral hazard?

A seller who is offering a low-quality used good for sale

Technological advances in pollution reduction

Experience ratings provide firms with an incentive NOT to

Figure 9.1 -Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers believe that 50% of used bikes are lemons (low quality), how many lemons (low quality) will be supplied by sellers?

Because pollution taxes raise production costs, the ________ curve ________.

A pollution tax

Table 9.8 -Table 9.8 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If Firm A contemplates selling one permit to Firm B, what is Firm A's willingness to accept?

Experience rating systems for pricing insurance discourage firms from spending money to try to improve their employees' health.

When people try to benefit from a public good without paying for it we call it the

Figure 9.3 -Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. If buyers believe that 50% of used refrigerators in the market are lemons (low quality), what fraction of used refrigerators sold will actually be lemons (low quality)?

Suppose two firms operate under a system of marketable pollution permits. If it costs Firm A $25 to reduce pollution by 1,000 units per day, and Firm B can reduce costs by $35 by increasing pollution by 1,000 units per day

By which of the following methods could a supplier identify its good as a plum to a skeptical buyer?

Warranties reduce information asymmetry.

It has been said that if buyers of used goods are pessimistic it becomes a self-fulfilling prophecy. In other words, buyer pessimism causes the market to have more low-quality goods. Explain why this is TRUE.

Figure 9.2 -Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum (high-quality) used camera and $25 for a lemon (low-quality) used camera. Initially buyers believe that 50% of used cameras in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer cameras are sold in equilibrium?

Why is it easier to raise $1 million in voluntary contributions for medical research into a deadly disease like cancer than it is to raise the same amount for space exploration?