Suppose buyers in the used car market are willing to pay $6,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 75% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
A. $4,250
B. $4,000
C. $3,750
D. $3,500
Answer: C
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Economic models explore decision making by individuals, firms and other organizations
Indicate whether the statement is true or false
The quality change bias is most likely to put ________ into the CPI and so ________ the inflation rate
A) a downward bias; understate B) an upward bias; understate C) an upward bias; overstate D) a downward bias; overstate E) a random bias; randomly overstate or understate
A predominant view among Federal Reserve officials is that
A) the Phillips curve is unimportant. B) the Phillips curve helps us forecast inflation. C) the Phillips curve helps us forecast the nominal interest rate. D) the Phillips curve does not exist in the data.
Refer to the above figure. When the price in the market is $4, economic profits will equal
A) $100. B) $200. C) $300. D) $400.