Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
Textbook Question
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Chapter 16, Problem 1SCQ

For each of the following purchases, say whether you would expect the dogma of imperfect information to be relatively high or relatively low:

  1. Buying apples at a roadside stand
  2. Buying dinner at the neighborhood restaurant around the comer
  3. Buying a used laptop computer at a garage sale
  4. Ordering flowers over the internet for your friend in a different city

Expert Solution
Check Mark
To determine

(a)

Whether the degree of imperfect information is high or low in case of buying apples at a roadside stand is to be determined.

Answer to Problem 1SCQ

The degree of imperfect information is relatively low.

Explanation of Solution

In the situation where the buyer is buying apples at a roadside stand: Here, buyer can see the apples and make the decision according, so, here the degree of imperfect information is relatively low.

Economics Concept Introduction

Imperfect information appears in a situation where buyers and sellers, entered into a transaction, have different information and have to make decisions on the basis of incomplete information.

Expert Solution
Check Mark
To determine

(b)

Whether the degree of imperfect information is high or low in case of buying dinner at the neighborhood restaurant around the corner is to be determined.

Answer to Problem 1SCQ

The degree of imperfect information is relatively low.

Explanation of Solution

In the situation where the buyer is buying dinner at the neighbourhood restaurant around the corner: The degree of imperfect information is relatively low as the neighbourhood restaurant around the corner may have some reputation.

Economics Concept Introduction

Imperfect information appears in a situation where buyers and sellers, entered into a transaction, have different information and have to make decisions on the basis of incomplete information.

Expert Solution
Check Mark
To determine

(c)

Whether the degree of imperfect information is high or low in case of buying a used laptop at a garage sale is to be determined.

Answer to Problem 1SCQ

The degree of imperfect information is relatively high.

Explanation of Solution

In the situation where the buyer is buying a used laptop computer at a garage sale: The degree of imperfect information is relatively high as the condition of used laptop computer and the reason behind selling it will be unknown to the buyer.

Economics Concept Introduction

Imperfect information appears in a situation where buyers and sellers, entered into a transaction, have different information and have to make decisions on the basis of incomplete information.

Expert Solution
Check Mark
To determine

(d)

Whether the degree of imperfect information is high or low in case of ordering flowers over the internet for a friend living in some other city is to be determined.

Answer to Problem 1SCQ

The degree of imperfect information is relatively high.

Explanation of Solution

In the situation where the buyer is ordering flowers over the internet for your friend in a different city: The degree of imperfect information is relatively high because we will not know how the flowers look like.

Economics Concept Introduction

Imperfect information appears in a situation where buyers and sellers, entered into a transaction, have different information and have to make decisions on the basis of incomplete information.

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Please answer questions D-H, I have already answered A , B,C but it may help you to still solve them yourself. Thank you!
2. A firm’s production function is given by:Q = 10KLThe unit capital and labour costs are 2 and 1 pounds respectively. The firm is contracted to produce2000 units.(a) Write out the optimisation problem of the firm. (b) Express this problem using a Lagrangian function. (c) Find values of K and L which fulfil the contract with minimal cost to the firm. (d) Calculate the total cost to the firm.
3. Consider the following estimated regression equation, estimated using a sample of firms, where RDis total firm spending on research and development in USD ($), Revenue is total firm revenuein USD ($), and W ages is the firms’ total spending on wages in USD ($) (standard errors inparentheses):RDd = 1000(600)+ 0.5(0.1)Revenue + 1.5(0.5)W ages,(a) Interpret the coefficients on each of the explanatory variables. (b) Which of the three coefficients are statistically significant at the 5% level of significance? Howdo you know? A researcher runs a two-sided statistical test of the null hypothesis that both the coefficients onthe explanatory variables above are jointly equal to 0.25 (mathematically, that β1 = β2 = 0.25),and reports a p-value of 0.045.(c) What does this p-value mean for the outcome of the test? (d) What would an appropriate two-sided alternative hypothesis look like?
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