One million automobiles have a defect that could cause the car to explode; however, only one of those cars will actually explode. Nobody knows which one car it is. When the car does explode, the victim's family will sue the automaker for $1 million and win. The defect costs $2 per car to repair. What does economics predict about the automaker's decision to repair the defect?
What will be an ideal response?
Correcting the defect will cost $2 million. Not correcting the defect will only cost $1 million. Economics predicts that the automaker will not correct the defect.
You might also like to view...
Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?
A) Kentucky Fried Chicken, which has a cross elasticity of 1.70 with Wendy's B) McDonald's hamburgers, which have a cross elasticity of 1.01 with Wendy's C) Pizza Hut pizza, which has a cross elasticity of zero with Wendy's D) Taco Bell tacos, which have a cross elasticity of -1.25 with Wendy's
The goal of "personalized pricing" is to determine how much each individual customer is willing to pay for a product. As such, it is an application of first-degree price discrimination
Indicate whether the statement is true or false
In 2008, nominal GDP was equal to $14,265 billion while the M1 money supply was $1,423 billion. What was the velocity of the M1 money stock?
a. 1.0 b. 10.0 c. 1.8 d. 0.1
The notion that when the price of the good you want rises you will buy less of it because you will find another good that will do instead is provided as the explanation for
A. the substitution effect. B. diminishing marginal utility. C. the real-balances effect.