Question 41 ptsConsider the market for used cars. Suppose that there are "good" used cars and "lemons" (or carsthat are likely to fall apart quickly).Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of"lemons" will sell their car for $2,00O. Furthermore, assume buyers are willing to pay $12,000 for a"good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, butbuyers cannot differentiate between good cars and lemons.This situation is an example ofbulk markups that occur with adverse selectionan adverse selection death spiralex-post moral hazardex-ante moral hazard

Consider the market for used cars. Suppose that there are "good" used cars and "lemons" (or cars that are likely to fall apart quickly). Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of "lemons" will sell their car for $2,000. Furthermore, assume buyers are willing to pay $12,000 fo "good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, but buyers cannot differentiate between good cars and lemons. This situation is an example of O bulk markups that occur with adverse selection O an adverse selection death spiral O ex-post moral hazard O ex-ante moral hazard

Consider the market for used cars. Suppose that there are "good" used cars and "lemons" (or cars that are likely to fall apart quickly). Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of "lemons" will sell their car for $2,000. Furthermore, assume buyers are willing to pay $12,000 fo "good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, but buyers cannot differentiate between good cars and lemons. This situation is an example of O bulk markups that occur with adverse selection O an adverse selection death spiral O ex-post moral hazard O ex-ante moral hazard

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose the market for auto insurance is made of up two types of buyers: high-risk and low-risk. Buyers’ willingness to pay (WTP) for auto insurance plans, and sellers’ willingness to accept (WTA) when selling plans to each type of buyer, are outlined in a photo (a) In a world with perfect information, would the market for insurance plans clear? If not, why? If yes, what are some prices that would a llow both markets to clear? The prices in each market are allowed to differ Assume now that there is asymmetric information and that insurance companies do not know how risky an individual buyer is. In the face of this uncertainty, they determine that the probability that a “walk-in” is high-risk is 0.75. What is the minimum price sellers are willing to accept when selling an insurance plan? At this price, will low- and high-risk buyers both be willing to purchase this insurance plan? Explain. Be sure the mention adverse selection in your answer.
Consider the following information on Alfred’s demand for visits per year to his health clinic, if his health insurance does not cover (100 percent coinsurance) clinic visits. Price Quantity 5 9 10 9 15 9 20 8 25 7 30 6 35 5 40 4 a. Alfred has been paying $25 per visit. How many visits does he make per year? Find his demand curve. b. What happens to his demand curve if the insurance company institutes a 40 percent coinsurance feature (Alfred pays 40 percent of the price of each visit)? What is his new equilibrium quantity? Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Suppose that a surfboard designer owns a building and is renting part of the building's space to a doctor. Further suppose that because the surfboard designer is the owner, he has the right to make noise during the day while he sands the boards. While the doctor cannot insist on a quiet environment, the doctor could move to a quieter building. However, rent in the next best building is $400/month more than rent in the noisy building. The surfboard designer can adopt a new technology that eliminates the noise for $325/month. Given this situation, can the doctor find a private solution with the surfboard designer that will make both better off? What is the minimum and maximum payment the doctor would make to the surfboard designer to get the doctor to install the noise-reducing equipment? NOTE: Round your answers to the nearest dollar. Minimum: $ Maximum: $
You are considering shoplifting a head of broccoli from the farmer’s market in SLO. Your buyer value for the broccoli is $1.75. The broccoli is available for legal purchase for $1.50. For comparison purposes, assume that if you don’t steal the broccoli, you will make the choice that makes you best off within the law. Which statement below is correct? Group of answer choices: -Stealing the broccoli leads to an increase in total surplus but also causes a reduction in surplus for owners of the broccoli. -Stealing the broccoli leads to a decrease in total surplus and also cause a reduction in surplus for owners of the broccoli. -Stealing the broccoli leads to an increase in total surplus and does not harm anyone else. -Stealing the broccoli does not lead to an increase or decrease in total surplus and also causes a reduction in surplus for owners of the broccoli.
Which of the following statements is correct? a. As wealth increases, decreasing marginal utility makes potential losses less serious for high-wealth individuals—this leads to a decrease in willingness to pay to avoid a given fair bet as wealth increases. b. As wealth increases, decreasing marginal utility makes potential gains less attractive for high-wealth individuals—this leads to an increase in willingness to pay to avoid a given fair bet as wealth increases. c. As wealth increases, whether net willingness to pay decreases or increases, to avoid a given fair bet, depends on the precise shape of the utility function. d. All of the above.
Under what circumstances would the trading price of a peach be guaranteed to be exactly $500 when there is full information? A.Never; it is not possible for a peach to ever be sold at that price B. When there are relatively many sellers C. When the number of buyers and sellers are equal D. When there are relatively many buyers
4. Consider the market for Citrus used car in which lemons account for 40% of the used cars offered for sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for a price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it at $4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be confi- dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was a known lemon, he would be willing to pay $5,000. Suppose that there are many buyers, but a limited number of used cars. What type of used cars - lemons or oranges - will be offered for sale in the market, and at what prices?
Suppose a demand curve has the form x = 100 - 10p. If the market price is $5, how would a $200 deductible impact quantity demanded? A. The consumer will behave in the same manner as he would with no insurance and consume 50 services. B.The consumer will behave in the same manner as he would with no insurance and consume 0 services. C.The consumer will behave as if the market price is $0 and consume 50 services. D.The consumer will behave as if the market price is $0 and consume 100 services.
Suppose that the typical inverse demand for trips to the dentist by a patient is given by p=1000-200q. Assume that there are lots of patients. Dentists charge $400 per visit, either to the insurer or to the patient, and this represents their average cost per visit. If there is an insurer, it charges a premium which comes straight out of the wealth of consumers. Assume that the premium is fair and reflects use of dental visits by all consumers, not just the specific consumer. (a) Find the optimal number of visits that would happen in order to maximize consumer welfare less the costs of dentistry. (b) Suppose that the insurer covers 50% of the dental cost. Does this lead to an increase/decrease in consumer welfare (i.e. the sum of consumer surplus less premiums)? Show how much.
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Which of the following explains why the owners of used cars tend not to sell them at a low price offered by skeptical buyers? O a Condorcet paradox. a screening problem. O a moral hazard problem. O an adverse selection problem.