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- An artist is planning to sell signed prints of her latest work. If 50 prints are offered for sale, she can charge $600 each. However, if she makes more than 50 prints, she must lower the price of all the prints by $5 for each print in excess of the 50. That is, 51 prints reduce the price by $5, 52 prints reduce the price by $10, and so on. How many prints should the artist make to maximize her revenue? Let x be the number of prints and p the price per print. The demand equation is p and the revenue function is ROX)The Money Multiplier is 10 (based on a required reserve ratio of 10%) and theFederal Reserve buys $2 Trillion of bonds. This leads to $1.8 Trillion of ExcessReserves. How much available lending capacity is created for our system?Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in adverse selection? a. The expectedprice offered by the buyer encourages the seller to sell a poor quality car. Hence only poor quality cars are sold, which harms sellers. b. The expected price offered by the buyer encourages the seller to sell a good quality car. Hence only good quality cars are sold, which harms buyers. c. The expected price offered by the buyer encourages the seller to sell a good quality car. Hence only good quality cars are sold, which harms sellers. d. The…
- Explain the relationship between moral hazard and insurance premiumsConsider the used car market with imperfect information. There are 10 bad quality cars (lemons) and 12 good quality cars. The value of a bad car is $8,000 and the value of a good car is $20,000. What is the equilibrium price? Group of answer choices $13,300 $21,818.18 $13,454.54 $14,000Fred wants to hire Barney to manage his retail store. Barney can apply a high level of effort (at a cost to him of $30), a medium level of effort (at a cost to him of $10), or a low level of effort (at a cost to him of $0). Fred's profits depend not only of the level of Barney's effort but also on the state of consumer demand. Fred believes that demand will be high with probability 50 percent (and therefore demand will be low with probability 50 percent). Fred has determined the following possible profit levels (before paying Barney) will occur depending on Barney's effort and the state of consumer demand: Demand low high effort low 20 40 medium 40 80 high 80 100 Of the choices below, what is the largest percentage range of profit provided to Barney that would ensure Barney would supply high effort? a. any percent greater than 75.00 percent (3/4). b. any percent greater than 66.66 percent (2/3). c. any percent greater than 50.00 percent (1/2).d. any…
- In circumstances of imperfect information should one expect the market to be efficient? Explain briefly.Three qualities of second-hand bicycles are available in equal numbers: high, medium, and low. There are many buyers and sellers, who value each quality of the bike differently. The value that each agent assigns to each quality of the bike is given below. Quality High Medium Low Buyer’s value 100 (high), 65 (medium), 30 (low) Seller’s value 75 (high), 60(medium) , 45 (low) Now assume that the sellers can offer a reimbursement of 50 to the buyer, payable if the bicycle breaks down. Bikes of high quality never fail; those of low quality always fail; those of medium quality fail 50% of the time. (iii) Suppose that all owners of high and low quality bikes offer reimbursement but owners of low quality bikes do not. Moreover, assume this to be common knowledge. Show that this is an equilibrium if the price satisfies 85 < p < 95. That is, show that none of the sellers is willing to change their behaviour, given actions of others. Is the resulting outcome socially optimal?…The Tucker family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a deductible of $1,000 per person. If one family member has doctor and prescription medication expenses of $2,200, what amount would the insurance company pay?
- Why might it be difficult for a buyer and seller to agree on a price when imperfect information exists?Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.1) A key difficulty facing insurance companies is that people know more about their health than do insurance companies, and that those people who are seriously ill are the most likely to want to obtain health insurance. What is this phenomenon called? A) moral hazard B) economic irrationality C) asymmetric information D) adverse selection 2) An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above? A) moral hazard B) adverse selection C) asymmetric information D) economic irrationality 3) The term that is used to refer to a situation in which one party to an economic transaction has less information than the other party is A) inefficient market hypothesis. B) moral hazard. C) information disparity. D) asymmetric information. 4) Which of the following parties is…
