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

Figure 9.10 -The pollution tax in Figure 9.10

Which of the following is NOT an example of the adverse selection problem?

Table 9.4 -Table 9.4 represents 3 markets for used motorcycles. Which of the markets in Table 9.4 are NOT in equilibrium?

Figure 9.5 -Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. Initially buyers believe that 80% of used cameras in the market are lemons (low quality). Compared to the outcome with these initial expectations, how many fewer cars are sold in equilibrium?

Which one of the following is NOT true of a thin market?

If two firms pollute, and the increase in costs to Firm A from decreasing pollution is equal to the decrease in costs to Firm B from increasing pollution

A command-and-control policy

Suppose buyers in the used car market are willing to pay $4,000 for a plum (high-quality) used car and $2,000 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?

In the used car market, the less-informed party is the ________. In the health care market, the less-informed party is the ________.

Firms are likely to prefer a pollution tax to a command-and-control policy because the command-and-control policy will

Table 9.4 -In Table 9.4, Market 3 would be in equilibrium if buyers believed plums accounted for

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. The insurance companies estimate that 40% of its customers are high-cost type. If the insurance companies set the price equal to their average cost per customer, what percent of customers who buy the insurance are actually low-cost customers?

Table 9.5 -Given the data in Table 9.5, if Firm A were to reduce pollution from 1,000 gallons of wastewater per day to 0 gallons per day, production costs

How does a pollution tax work?

While marketable pollution permits may ________ the total amount of pollution, they may ________ pollution in local areas.

In the used pick-up truck market

Suppose you notice that the market for used bikes is dominated by lemons (low-quality bikes). In such a situation, if you are a buyer of used bikes, you are faced with

A good that is available for everyone to consume, regardless of who pays and who doesn't, is called a

Public goods are always provided by the government because private markets do not have an incentive to provide them.

One result of adverse selection in the used car market is that few plums (high-quality) are sold.