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Incomplete information frequently lowers the average quality of products and services exchanged in markets. This phenomenon, at times called the "lemons problem," explains why the supply of lower-quality products increases relative to higher quality products when sellers cannot communicate the quality of their products to potential buyers.
Discuss:
a. Why efficiency in markets with incomplete information present lower than in those with perfect information.
b. How “lemon laws” that allow buyers to return used cars or other products that turn out to be “lemons” help to correct the problem.
c. How certifications and warranties can reduce inefficiencies.
In the long run, some firms will respond by, The new equilibrium price and quanity suggest that the shape of the long-run supply curve in this industry is (horizontal, vertical, upward sloping, downward sloping)
Using the net benefit ratio method of Deaton, please tell us whether a 10% increase in output price will increase or decrease the economic welfare of each of the following three agricultural households, by how much, and why (be sure to show your w..
Fill out the following table for the short run for K=8. MPL refers to the marginal product of labor; MRPL refers to the marginal revenue product of labor. Using the rule MRPL = pL, find the profit-maximizing number of workers for the firm to hire fro..
The president of the United Auto Workers has noticed that whenever he negotiates a pay increase for the UAW membership, the number of jobs available for the union membership is unaffected in the first few months of the contract, but over the followin..
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Milliken uses a digitally controlled “dyer” for placing intricate and integrated patterns on manufactured carpet squares for home and commercial use. It is purchased for $400,000. It is expected to last 8 years and have a salvage value of $30,000.
What are the positive and negative aspects of budget deficits and surpluses? What policy is best for today's economy? Explain your answer.
The Chicago Board of Trade voted to create a private market for right to emit sulfer dioxide. The Clean Air Act of 1990 established a limit, beginning in 1995, on total emmissions of sulfer dixoxide from 110 power plants. Given that firms can exceed ..
As newly appointed “Energy Czar,” your goal is to reduce the total demand for residential heating fuel in your state. You must choose one of three legislative proposals designed to accomplish this goal: a tax that would effectively increase the price..
If your goal is to stabilize output, explain how you would change the interest rate in response to the following events (or shocks). In each case, show the effects on the economy in the short run using the IS-MP diagram. Consumers become pessimistic ..
Demand in a perfectly competitive market is Q = 100 - P . Supply in that market is Q = P - 10.
Facts: Nissan took its “Hardbody” truck line and used it as the basis for designing and building its “Pathfinder” sport utility vehicle. The Pathfinder incorporated the Hardbody’s frame side rails, front cab, and front suspension. The tariff schedul..
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