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

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. Initially buyers believe that 50% of used digital cameras in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer digital cameras are sold in equilibrium?

The social cost of production is

A nationwide system of marketable pollution permits will reduce pollution overall, but might increase pollution in some high abatement cost areas.

Experience rating systems for pricing insurance are based on past medical bills of a firm's employees.

Recall the Application about how having car insurance affects driving behavior to answer the following question(s). -Recall the Application. When a state makes car insurance compulsory, decreasing the number of uninsured drivers, roads tend to become less hazardous.

Under a system of marketable pollution permits

When buyers assume that there is a 70% chance of getting a lemon, and seven lemons (low quality) and three plums (high quality) are supplied, there is an equilibrium.

A carbon tax placed on a fossil fuel

A market in which there are neither external benefits nor external costs is inefficient.

When economists say that a good is nonrival in consumption, they mean that

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s). -Recall the Application. Baseball teams know more about the health of free agent pitchers than the pitchers themselves.

If you see a movie at a theater, the movie is

Health insurance leads to what types of moral hazards?

What is the highest price that a firm would be willing to pay for one marketable pollution permit?

The optimal level of pollution abatement is where

One result of asymmetric information about people's ability to repay a loan is that

Suppose two power plants pollute a river and both firms operate under a system of marketable pollution permits. If it costs Firm A $90 to reduce pollution by 800 units per day, and Firm B can reduce costs by $115 by increasing pollution by 800 units per day

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 used cameras in the market are lemons (low quality), what fraction of used cameras sold will actually be plums (high quality)?

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 all of the used cameras in the market are lemons (low quality), what number of used cameras sold will actually be lemons (low quality)?

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 have pessimistic expectations about the used bikes in the market, how many used plums (high-quality used bikes) will be sold?