Suppose there are 11 buyers and 11 sellers, each willing to buy or sell one unit of a good, with values {$14, $13, $12, $11, $10, $9, $8, $7, $6, $5, $4,}. Assume no transaction costs and a competitive market. Now suppose competition among several market makers forces the spread down to $4 . How many goods are traded?
a. Four
b. Five
c. Six
d. Seven
a
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Explain the adverse selection problem that is faced by health insurance companies when offering individual health insurance policies. What method do health insurance companies employ to combat the problem?
What will be an ideal response?
What is the "omitted variable" problem in determining cause and effect?
A) It is a problem that arises when an economic variable that affects other variables is omitted from an analysis and its omission leads to false conclusions about cause and effect. B) It is a problem that arises when a significant variable is not given enough weight in an economic experiment leading to skewed conclusions about cause and effect. C) It is a problem that arises when an insignificant economic variable that should have been omitted is included in an economic experiment leading to false conclusions about cause and effect. D) It is a problem that arises when an insignificant variable is given too much weight in an economic analysis leading to skewed conclusions about cause and effect.
Many people donate to charity and leave tips to servers in restaurants even when they will never visit the restaurant again. Economists consider this type of behavior to be
a. irrational because these actions make people worse off financially. b. rational because it shows that people value fairness even when this behavior makes people worse off financially. c. rational only if other people observe this behavior. d. All of the above are consistent with the general view of fairness
Figure 9.1 shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is:
A. $7,200. B. $9,000. C. $27,000. D. $36,000.