Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows:Types of CarsBuyer's ValuationSeller's ValuationGood (50% probability)5,0004,500Bad (50% probability)3,0002,500Suppose that both buyers and sellers observe the quality. What happens?
A. Only good cars are traded.
B. Only bad cars are traded.
C. Neither good nor bad cars are traded.
D. Both good and bad cars are traded.
Answer: D
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If there is unemployment and all businesses are operating at less than full capacity, then
A) society is at the wrong point on the production possibilities curve. B) there are too many workers, and some people ought to leave the labor force. C) we are not experiencing a net social cost to unemployment because it is offset by the capacity levels of the factories. D) society is producing inside its production possibilities curve.
Which of the following is a negative effect of economic growth?
A) higher inflation B) environmental pollution C) higher unemployment D) all of the above
Refer to Scenario 12.2. This scenario has the characteristics of what game structure?
A) prisoner's dilemma B) pure coordination C) chicken D) assurance
In response to the destructive bank panics of the Great Depression, future bank panics are designed to be prevented by
A) the Federal Reserve System conducting open market operations. B) the establishment of the Federal Deposit Insurance Corporation. C) establishing a fractional reserve system of banking. D) increasing the required reserve ratio to 100%.