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

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. If buyers believe that 50% of the used cameras in the market are lemons (low quality), how much will pay for a used camera?

The free-rider problem arises because

A carbon tax placed on coal will ________ the price of coal and ________ the quantity sold of coal.

Copayments and deductibles in insurance policies increase moral hazard.

Suppose that lenders believe that the government will provide assistance if too many of the lenders' borrowers do not pay back their loans. If lenders expect government assistance they will

Suppose that Harold buys collision insurance for his car and then drives it recklessly. This is an example of

Why does it usually NOT make sense to reduce pollution to zero?

An example of a good that is excludable is

Insurance leads to taking less risk.

Buyers in the market for used guitars are getting more pessimistic about the possibility of getting a good guitar. This will cause the price of used guitars to ________ and the percentage of good used guitars to ________.

Table 9.7 -Table 9.7 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 the two firms agree to swap one permit and split the difference between the willingness to pay and willingness to accept, what is the price of a permit?

Recall the Application about federal quality standards in the market for kiwifruit to answer the following question(s). -Recall the Application. The federal government marketing order that helped reduce asymmetric information about kiwifruit led to

Recall the Application about genetic discrimination to answer the following question(s). -According to the Application, ________ discrimination occurs when an insurance company treats someone differently due to a gene mutation that increases the risk of an inherited disorder.

A solution to market failure in the particular application of environmental policy

Suppose that there are two firms, each generating three tons of SO₂. Suppose also that the government has set a target abatement level of two tons. Under a policy of uniform abatement with permits, each firm would receive

If a private good generates external benefits

Which of the following statements about a market for used cars is INCORRECT?

An example of a public good is

Figure 9.6 -Figure 9.6 represents the market for health insurance. Suppose there are two types of consumers, low-cost consumers with $2,000 average medical expenses per year, and high-cost customers with $4,000 average medical expenses per year. If the insurance companies are pessimistic and set their price according to their pessimistic expectations

A pollution tax allows a firm to externalize some of its internal costs.