Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. How could the owner of a house with a solid foundation credibly signal to potential buyers that the house has a solid foundation?
A. Lower the asking price to $196,000.
B. Keep the house on the market for $200,000 because eventually buyers will catch on.
C. Simply tell potential buyers that the foundation is solid.
D. Offer a warranty to fix any foundation problems that develop in the next 12 months.
Answer: D
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You observe that an increase in the price of salsa decreases the demand for tortilla chips and increases the demand for potato chips. You can conclude that
A) salsa and tortilla chips are substitutes. B) salsa and potato chips are complements. C) tortilla chips and potato chips are complements. D) salsa and tortilla chips are complements.
The linear stages theory of economic growth fails to recognize that increased investment is
a. both a necessary and a sufficient condition. b. a necessary but not a sufficient condition. c. a sufficient but not a necessary condition. d. neither a necessary nor a sufficient condition.
The Laffer curve shows as tax rates rise, tax revenue:
A. rises. B. first rises, then falls, and then rises again. C. falls. D. first rises, and then falls.
Explain how mandatory seat belt laws may reduce the negative externalities of risky behavior
What will be an ideal response?