It has been said that if buyers of used goods are pessimistic it becomes a self-fulfilling prophecy. In other words, buyer pessimism causes the market to have more low-quality goods. Explain why this is true.
What will be an ideal response?
The more pessimistic buyers are, the lower the price they will be willing to pay for a used good. The lower the price, the less willing owners of high-quality goods are to sell. Pessimism reduces the price offered in the market for used goods which drives out the high-quality goods.
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Assume a consumption function of the following form: C = 100 + .8Y. If income is equal to $3,000, then consumption is
A) $2,400. B) $2,500. C) $2,900. D) $3,100.
If a perfectly competitive firm is operating in the short run and seeks to maximize profit, the firm should:
a. increase output whenever marginal cost is less than average total cost. b. increase output whenever marginal revenue is less than marginal cost. c. choose the output where per-unit profit is greatest d. increase output whenever price exceeds marginal cost.
In the above figure, if the budget line is the line DE, the consumer will maximize utility at point
A. A. B. B. C. C. D. G.
In an effort to avoid recession, the government implements a tax rebate program, effectively cutting taxes for households. We would expect this to:
A. affect neither aggregate supply nor aggregate demand. B. increase aggregate demand. C. reduce aggregate demand. D. reduce aggregate supply.