Why can car insurance companies charge higher auto rates for new customers than for established customers, all else held constant?
What will be an ideal response?
The insurance company faces an asymmetric information problem with a new customer-they do not know whether the person is a good driver or whether they are careful about how they take care of their car. After a few years of not getting any "bad news" about the driver the insurance company can afford to reduce its rates and still earn zero economic profits.
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(i) How many videos does Spencer rent each year? How much consumer's surplus does Spencer receive from renting videos? (ii) Blockpopper's starts a "frequent viewers" club. For a membership fee of $35 per year, club members can rent as many videos as they wish at the discounted price of $2 per rental. Should Spencer join the "frequent viewers" club? If yes, how much surplus value would Spencer receive as a club member? If no, what membership fee would Spencer be willing to pay to join the club?
(i) The accompanying diagram shows the effects of a tariff. Initially, the price is P0, domestic firms produce Q0 units, and Q1 - Q0 units are imported from foreign firms. When the tariff is imposed, the price increases to P0 + t.
How does the tariff affect consumers' surplus and producers' surplus? How much tariff revenue is collected by the government? Does imposing the tariff cause the country's social gain to rise or fall?
(ii) The situation in part i is known as the "small country" case-the country has no market power, so its tariff does not affect the world price P0. Now consider the "large country" case shown in the accompanying diagram-in this case, the country has market power, and the tariff (by reducing the demand for imports) causes the world price to fall from P0 to P1. So after the tariff is imposed, the domestic price is P1 + t.
How does the tariff affect consumers' surplus and producers' surplus in this situation? How much tariff revenue is collected by the government? When a "large country" imposes a tariff, will its social gain rise or fall?
From 1995 to 2013, total revenues to public institutions attributable to tuition increases
A. decreased. B. increased $230 billion. C. remained constant. D. increased $47 billion.
Refer to the table below. Under a flexible exchange rate system, what will be the rate of exchange for one euro?
The table below shows the supply and demand schedules for the European euro.
A. $0.80
B. $0.90
C. $1.00
D. $1.10
Suppose the demand for meals at a medium-priced restaurant is elastic. If the management of the restaurant is considering raising prices, it can expect the total revenues the restaurant earns to:
A) increase. B) stay the same. C) decrease. D) cannot be determined with the information given.