CHAPTER 12 THE ECONOMICS OF INFORMATION 348 pottery. Each has an annual income of $100,000 (Fred's from a pension, Jim's from salary). One buys most of his pottery at local auctions, and the other buys most of his from a local dealer. Which brother is more likely to buy at an auction, and does he pay more or less than his brother who buys from the local dealer? (LO2) 6. How will growing Internet access affect the number of film actors and musicians who have active fan clubs? (LO2) 7. Consumers know that some fraction x of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $10,000 each. New cars sell for $5,000 and used ones for $2,500. What is the fraction x? (LO3) 8. State whether the following are true or false, and briefly explain why: (LO3) a. Companies spend billions of dollars advertising their products on network TV primarily because the texts of their advertisements persuade consumers that the advertised products are of high quality. b. You may not get the optimal level of advice from a retail shop when you go in to buy a lamp for your bike because of the free-rider problem. c. If you need a lawyer, and all your legal expenses are covered hy insurance YOu should
CHAPTER 12 THE ECONOMICS OF INFORMATION 348 pottery. Each has an annual income of $100,000 (Fred's from a pension, Jim's from salary). One buys most of his pottery at local auctions, and the other buys most of his from a local dealer. Which brother is more likely to buy at an auction, and does he pay more or less than his brother who buys from the local dealer? (LO2) 6. How will growing Internet access affect the number of film actors and musicians who have active fan clubs? (LO2) 7. Consumers know that some fraction x of all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $10,000 each. New cars sell for $5,000 and used ones for $2,500. What is the fraction x? (LO3) 8. State whether the following are true or false, and briefly explain why: (LO3) a. Companies spend billions of dollars advertising their products on network TV primarily because the texts of their advertisements persuade consumers that the advertised products are of high quality. b. You may not get the optimal level of advice from a retail shop when you go in to buy a lamp for your bike because of the free-rider problem. c. If you need a lawyer, and all your legal expenses are covered hy insurance YOu should
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.12P
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Number 7
Transcribed Image Text:CHAPTER 12 THE ECONOMICS OF INFORMATION
348
pottery. Each has an annual income of $100,000 (Fred's
from a pension, Jim's from salary). One buys most of
his pottery at local auctions, and the other buys most
of his from a local dealer. Which brother is more likely
to buy at an auction, and does he pay more or less than
his brother who buys from the local dealer? (LO2)
6. How will growing Internet access affect the number of
film actors and musicians who have active fan clubs?
(LO2)
7. Consumers know that some fraction x of all new cars
produced and sold in the market are defective. The
defective ones cannot be identified except by those who
own them. Cars do not depreciate with use. Consumers
are risk-neutral and value nondefective cars at $10,000
each. New cars sell for $5,000 and used ones for $2,500.
What is the fraction x? (LO3)
8. State whether the following are true or false, and briefly
explain why: (LO3)
a. Companies spend billions of dollars advertising their
products on network TV primarily because the texts
of their advertisements persuade consumers that the
advertised products are of high quality.
b. You may not get the optimal level of advice from a
retail shop when you go in to buy a lamp for your
bike because of the free-rider problem.
c. If you need a lawyer, and all your legal expenses are
covered hy insurance YOu should
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