Figure 14.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. Initially buyers believe that 50% of used digital cameras in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer digital cameras are sold in equilibrium?
A. 90
B. 110
C. 140
D. The number of cameras sold in equilibrium is the same as the outcome with neutral expectations.
Answer: C
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Business cycle persistence refers to the property that
A) real GDP is rarely exactly at trend. B) booms and recessions last a long time. C) when real GDP is above trend, it tends to stay above trend, and when it is below trend, it tends to stay below trend. D) business cycles are persistently hard to predict.
A country reduces its government budget deficit and also makes political reforms that lead people to believe this country's assets are less risky. Given the combination of a reduced deficit and lower asset risk, what happens to the interest rate?
Whether or not deficits create a burden depends on how and why the government incurred the deficits in the first place. Explain.
What will be an ideal response?
In the context of the environment, the type of transactions costs that includes finding, coordinating, and motivating victims of pollution emissions to help with the bargaining process are called
A) search costs. B) collectivization costs. C) negotiation costs. D) monitoring and enforcement costs.