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please answer a & b
In a used car market there are two types of cars: bad (B) and good (G). Assume that the utility from a bad car is Ub= Php100, and the utility from a good car is Ug = Php1000. Jaebeom, the owner of IGOT7 Used Cars Company, buys cars from the general public for his lot (assume he just keeps them on his lot for now). The owners of the cars who are selling to Jaebeom know the qualities of the cars they are selling, but Jaebeom does not.
a. If car type is observable, what is the price paid for good and bad-type cars?
b. Describe the equilibrium in the market assuming that Jaebeom can only offer the same buying price to
any car in the market (i.e. cannot discriminate among sellers). What is the equilibrium used car price?
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- Suppose now that there is a scrappage scheme which fully reimburses the citizen if she buys the new ULEZ-compliant car. That is, the subsidy is equal to S = 10, 000. What is her utility of buying the new car? What is her utility of buying the old car? Does the citizen prefer to buy the new car?The Minister of Transport released its Festive season road accident statistics which shows that the probability of drivers committing an accident is 8% with utility U(H) = √H, where H stands for year income. The Minister further claims these Festive season road accidents cost the state (in terms of claims lodged) an average of R84 000 per annum. The Road Accident Fund is an insurance scheme providing compulsory indemnity cover to victims of vehicle accidents and taxi drivers. (a) Suppose that an average commuter earns R84 000 per annum. What is the expected utility of each commuter if the driver decides not to take insurance. (b) What is the cost of insurance policy to the Road Accident Fund? (c) Due to high accident rates during Festive season, the road accident fund has issued a warning to the government that the fund will be insolvent soon. Advise the Minister on the cost of insurance that can collapse the schemeThe Minister of Transport released its Festive season road accident statistics which shows that the probability of drivers committing an accident is 8% with utility U(H) = √H, where H stands for year income. The Minister further claims these Festive season road accidents cost the state (in terms of claims lodged) an average of R84 000 per annum. The Road Accident Fund is an insurance scheme providing compulsory indemnity cover to victims of vehicle accidents and taxi drivers. (a) Suppose that an average commuter earns R84 000 per annum. What is the expected utility of each commuter if the driver decides not to take insurance. (b) What is the cost of insurance policy to the Road Accident Fund?
- Suppose that there are 2 types of plans available to you. Plan A has a deductible of $500, with 10 percent co-insurance rate for many health care services. Plan B has a deductible fo $1000, with 35 percent co-insurance rate. Plan A costs $200 per month in premiums while Plan B costs $80. Discuss characteristics of people who would choose Plan A versus Plan B. Assuming that both plan types exist in the market, who would likely choose Plan B over Plan A? What plan would you choose?Suppose now that there is a scrappage scheme which fully reimburses the citizen if she buys the new ULEZ-compliant car. That is, the subsidy is equal to S = 10, 000. What is her utility of buying the new car? What is her utility of keeping the old car? Does the citizen prefer to buy the new car?Consider two treatments. Treatment 1 saves one year of life at a cost of $10,000. Treatment 2 saves ten years of life at a cost of $1,000,000. Which treatment is more cost-effective? Why? Consider two treatments. Treatment 1 saves six years of quality adjusted life at a cost of $90,000. Treatment 2 saves three years of quality adjusted life at a cost of $60,000. Which treatment is preferred from a cost utility analysis perspective? Suppose Jay has been experiencing back pain and that there are two options for back pain: Treatment Regimen Total Cost Pain Reduction Do nothing $0 0 units Cortisone injections $600 30 units Calculate the ICER between cortisone injections and doing nothing. Jay says he is willing to pay $10 for a per unit of pain reduction. Should he choose cortisone injections? Another treatment is discovered. It costs $700 and reduces pain by 25 units. Should he choose the new treatment?
- Because Income depends on work effort and work effort depends on nutrition, suppose the relationship between income (Y) and total food availability (F) in a poor household is given by: Y = 10F + 20F2 – 0.6F3 a) If food availability in a two-person household is 20, would it be “rational” to share the food? Explain. b) If food availability in a two-person household is 30, would it be “rational” to share the food? Explain.A decrease in the supply of in building materials (shortage) means that construction companies cannot get enough materials to complete all their projects. The owners of construction companies in Fiction Town have a choice between these two options: To lay off (temporarily fire) 10% of their least experienced workers. To reduce the hours of all employees by 5 hours a week, meaning they will be paid for 5 fewer hours of work. What happens to the average income of people who are employed as construction workers? The owners of the companies make profit from the payments made on their construction projects. What happens to the income of the owners? Assume that construction workers are counted as part of the average income in all of Fiction Town. What happens to the average income of people there? Why?Suppose that each week Fiona buys 16 peaches and 4 apples at her local farmer's market. Both kinds of fruit cost $1 each. From this we can infer that: If Fiona is maximizing her utility, then her marginal utility from the 16th peach she buys must be greater than her marginal utility from the 4th apple she buys. Fiona is not maximizing her utility. If Fiona is maximizing her utility, then her marginal utility from the 16th peach she buys must be equal to her marginal utility from the 4th apple she buys. The law of diminishing marginal utility does not hold for Fiona.
- TQuestion 1 - All else equal, a car insurance plan that offers less full insurance coverage will produce less moral hazard. O. True O. False Question 3 - Many states have laws requiring health insurance policies cover the treatment of diabetes. One study found that after the passage of these laws, diabetics weight increased, which complicates the treatment. This is an example of moral hazard. O. True O. FalseConsider the model of the market for lemons from Chapter 22. Suppose that there are two types of used cars — good ones and lemons — and that sellers know which type of car they have. Buyers do not know which type of car a seller has. The fraction of used cars of each type is 21 and buyers know this. Let’s suppose that a seller who has a good car values it at $10,000 and a seller with a lemon values the lemon at $5,000. A seller is willing to sell his car for any price greater than or equal to his value for the car; the seller is not willing to sell the car at a price below the value of the car. Buyers’ values for good cars and lemons are $14,000 and $8,000, respectively. As in Chapter 22 we will assume that buyers are risk-neutral; that is, they are willing to pay their expected value of a car. (a) Is there an equilibrium in the used-car market in which all types of cars are sold? Briefly explain.(b) Is there an equilibrium in the used-car market in which only lemons are sold? Briefly…Student question Time Left :00:09:43Suppose there are two consumers, A and B. The utility functions of each consumer are given by: UA(X,Y) = 2X + Y UB(X,Y) = Min(X,Y) The initial endowments are: A: X = 5; Y = 3 B: X = 2; Y = 2 a. Illustrate the initial endowments in an Edgeworth Box. Be sure to label the Edgeworth Box carefully and accurately, and make sure the dimensions of the box are correct. Also, draw each consumer’s indifference curve that runs through the initial endowments. Is this initial endowment Pareto Efficient? b. Now suppose Consumer A gets all of both goods. Is this allocation Pareto Efficient? (You do not need to draw a new graph or illustrate this on the existing graph. Simply answer “yes” or “no.”) c. Now suppose Consumer B gets all of both goods. Is this allocation Pareto Efficient? (You do not need to draw a new graph or illustrate this on the existing graph. Simply answer “yes” or “no.”)