EBK INTERMEDIATE MICROECONOMICS AND ITS
EBK INTERMEDIATE MICROECONOMICS AND ITS
12th Edition
ISBN: 9781305176386
Author: Snyder
Publisher: YUZU
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Chapter 15, Problem 4RQ
To determine

To explain: Signal used by manufacturer for selling laptops.

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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.
Used cars are either lemons or peaches, and only owners know the type, buyers do not. Buyers value a peach at $4000 and a lemon at $200, and owners value a peach at $3000 and a lemon at $100. A) If there were perfect information (both sides know the type), would we have mutually beneficial transactions? If so, what is the range of prices?   B)  Without perfect information, and a 50% chance of a peach or lemon would there be mutually beneficial transactions?   C)  If owners could have the car verified as peach or lemon for $100, which owners would get the certificate? Show why.
You read about a traveling situation in which some airline passengers seem toget a “fast pass” through security and move effortlessly through the boarding process, while other passengers are waiting in long lines. In this example, the travellers who are moving quickly through the boarding process are probably:   a) VIP passengers waiting longer more in an inconvenient lines   b) Passengers who value time and convenience and are willing to pay additional fees for the privileges and other services   c) Loyal passengers whom they knew beforehand in which line to go to avoid delays and inconveniences   d) Government officials who are seated in the executive area
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