MICROECONOMICS W/CONNECT >IC<
20th Edition
ISBN: 9781259550577
Author: McConnell
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Chapter 4.A, Problem 3ARQ
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True or false.
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“An efficient market is one in which no one ever profitsfrom having better information than the rest of the market participants.” Is this statement true, false, oruncertain? Explain your answer.
Once a private information is made public and it is immediately reflected in the price, then the market is a strong form of market efficiency.
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It is rational for someone who wants to sell a lemon to offer the buyer a money-back guarantee. explain
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Chapter 4 Solutions
MICROECONOMICS W/CONNECT >IC<
Ch. 4.A - Prob. 1ADQCh. 4.A - Prob. 2ADQCh. 4.A - Prob. 3ADQCh. 4.A - Prob. 1ARQCh. 4.A - Prob. 2ARQCh. 4.A - Prob. 3ARQCh. 4.A - Prob. 1APCh. 4 - Prob. 1DQCh. 4 - Prob. 2DQCh. 4 - Prob. 3DQ
Ch. 4 - Prob. 4DQCh. 4 - Prob. 5DQCh. 4 - Prob. 6DQCh. 4 - Prob. 7DQCh. 4 - Prob. 8DQCh. 4 - Prob. 9DQCh. 4 - Prob. 1RQCh. 4 - Prob. 2RQCh. 4 - Prob. 3RQCh. 4 - Prob. 4RQCh. 4 - Prob. 5RQCh. 4 - Prob. 6RQCh. 4 - Prob. 7RQCh. 4 - Prob. 1PCh. 4 - Prob. 2PCh. 4 - Prob. 3PCh. 4 - Prob. 4PCh. 4 - Prob. 5PCh. 4 - Prob. 6PCh. 4 - Prob. 7P
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- Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.arrow_forwardWhich is NOT true about the weak, semi-strong, and strong forms of the efficient markets? Under the weak form, only historical information is reflected in asset prices. Under the semi-strong form, both past and currently known information is reflected in prices. Under the strong form, all information, past and present, publicly known and private, is reflected in prices. Under all forms, price levels are quickly impacted by new information.arrow_forwardA risk-averse individual experiences an adverse event with probability of 2% (0.02) that costs $1000. How much insurance coverage will the individual purchase if premiums are actuarily fair? a-some amount more than $1000 b-$1000 c-$0 d-some amount greater than $0, but less than $1000 The government of Stratospheria is currently inviting investors to bid for the exclusive right to provide cable television service to its residents. The market demand for this service is P=55-0.01Q, where Q is the number of households that would subscribe to the cable service and P is the monthly fee charged to the subscribers. The associated marginal revenue curve is MR=55-0.02Q. Fun Cable Company is interested in bidding for the right to provide cable service in Stratospheric. It has a constant average and marginal cost of RM5 for providing cable service to each household. 2.4) What is the most Fun Cable Company would bid for the franchise? 2.5) At what level of output (number of households) is…arrow_forward
- Determine whether the statements is true, false, or uncertain. If the statement is false or uncertain, please correct the statement to make it true. If the statement is true, please explain your answer briefly. Include a short definition of any underlined term. 1. A corrective tax creates a deadweight loss, reducing economic efficiency.arrow_forwardExplain how moral Hazard can lead to market failure.arrow_forward5. Individual Problems 18-5 When a famous painting becomes available for sale, it is often known which museum or collector will be the likely winner. Yet, the auctioneer actively woos representatives of other museums that have no chance of winning to attend anyway. Suppose a piece of art has recently become available for sale and will be auctioned off to the highest bidder, with the winner paying an amount equal to the second highest bid. Assume that most collectors know that Simone places a value of $65,000 on the art piece and that she values this art piece more than any other collector. Suppose that if no one else shows up, Simone simply bids $65,0002=$32,500$65,0002=$32,500 and wins the piece of art. The expected price paid by Simone, with no other bidders present, is . Suppose the owner of the artwork manages to recruit another bidder, Yakov, to the auction. Yakov is known to value the art piece at $52,000. The expected price paid by Simone, given the…arrow_forward
- Consider the used car market with imperfect information. There are 10 bad quality cars (lemons) and 12 good quality cars. The value of a bad car is $8,000 and the value of a good car is $20,000. What is the equilibrium price? Group of answer choices $13,300 $21,818.18 $13,454.54 $14,000arrow_forward1a) I have a budget of 10 million. I want to buy a house and some cars (x) to fill up my garage. The size of the house is measured in squared metres with a price of 1000 per square metre (y). My utitility follows a quaslinear function, u(x,y) = 2√x + 2y. What are the demand functions for the number of cars and the land coverage of my house? 1b) If a land tax of 10% per square metre is implemented, what is the income effect? What is the substitutiion effect?arrow_forwardQ51 Suppose an advertising firm purchases additional insurance against theft and, as a result, the partners are not very careful about locking their office doors when they leave. This is... a. Adverse selection. b. A public good. c. A common property resource. d. The free-rider problem. e. Moral hazard.arrow_forward
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