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Price-Setting with Asymmetric Information: Consider the Market for Lemons model from class, where the quality is uniformly distributed on [0, l], the value to the buyer is vq and the 1value for sellers is g. Consider a trading mechanism in which the buyer offers a price for a used car, then selects at random among those willing to sell at the stated price. Assume that U & 2 and that there are a large number of sellers in the market (ie. for any price the buyer offers, she can always ?nd someone to sell at that price). What price would the buyer set? Explain why she would set a price higher than she needs to in order to purchase a car.
Explain what the GDP cost index is and what is its role in differentiating nominal GDP and real GDP.
Suppose stocks A, B and C have the same expected return and standard devieation. The correlations of return are given as follows Corr(A,B)=0.7, Corr(B,C)=-0.3 and Corr(A,C)=0.2.Find the weights on each of these stocks.
“If the legal standard of care in a negligence rule is necessarily vague, the court should set it below the level of efficient precaution.” Explain the economic argument in favor of this proposition. Doctors are liable when their negligence injures p..
A single firm monopolizes the entire market for some product which can be produced at a cost of c(Q) = Q^2. The firm faces a market demand curve given by Q = 60 ? 0.5p. What is the firm’s profit? Calculate the Lerner Index for the market
An appliance manufacturer produces two models of microwave ovens: H and W. Both models require fabrication and assembly work; each H uses four hours of fabrication and two hours of assembly, and each W uses two hours of fabrication and six hours of a..
Where p is the input price, and a, b, α, β > 0. Find the profit-maximizing price and quantity of the input the monopsonist will choose, and compare the analysis to that of the profit-maximizing monopoly
Draw diagrams to explain how shifts in aggregate supply and demand are likely to lead to changes in output and inflation when:
A cost analysis is to be made to determine what, if anything, should be done in a situation offering three "do-something" and one "do-nothing" alternatives. Use a 10-year analysis period for the four mutually exclusive alternatives. At the end of Yea..
Write down a health production function that depends on the two inputs: quantity of medical care and hours of exercise. That is, provide the functional form along with either numerical values of parameters, or (at a minimum) signs of the parameters o..
What will happen to the market price when a price control is nonbinding?
A county is considering building a temporary road to cut travel time during the two years it will take to build a permanent highway. The temporary road can be put up in the beginning of the project at a cost of $900,000. Total maintenance cost of the..
Research and outline the direct and indirect, positive and negative economic impacts these services have on different parts of the industry such as:
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