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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

A website offers a place for people to buy and sell emeralds, but information about emeralds can be quite imperfect. The website then enacts a rule that all sellers in the market must pay for two independent examinations of their emerald, which are available to the customer for inspection.

a. How would you expect this improved information to affect demand for emeralds on this website?

b. How would you expect this improved information to affect the quantity of high-quality emeralds sold on the website?

Sketch the effects in parts (a) and (b) on a single supply and demand diagram. What prediction would you make about how the improved information alters the equilibrium quantity and price?

To determine

The predictions that would be made about the improved information which will change the quantity and price are to be determined.

Explanation

As given in the diagram, x-axis and y-axis shows the quantity and price of high-quality emeralds respectively. P represents the price and Q represents the quantity of high-quality emeralds.

In the given case, the customer would be able to differentiate between high-quality emeralds and low-quality emeralds and demand has been increased...

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