Suppose that Bill wants to dine at a fancy restaurant, but the only available table is in the smoking section. Bill dislikes the smell of cigarette smoke. He notices that only one person, Peter, is smoking in the smoking section. Bill values the absence of smoke at $15 . Peter values the ability to smoke in the restaurant at $10 . In order for Bill to pay Peter not to smoke, he will need to tip
the waiter $10 to facilitate the transaction. Which of the following represents an efficient solution?
a. Peter continues to smoke because the cost to Bill to pay him not to smoke is between $20 and $25, which exceeds the benefit to him of no smoking ($15).
b. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10 . Peter accepts, and both parties are better off.
c. Bill offers Peter between $10 and $15 not to smoke, and he pays the waiter $10 . Peter declines because he has a right to smoke in the smoking section.
d. Bill offers Peter $5 not to smoke, and he pays the waiter $10 . Peter accepts, and both parties are better off.
a
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The price of the steel used to produce car engines increases. How does this price hike affect the demand curve for cars?
A) The demand curve shifts leftward. B) The demand curve shifts rightward. C) The demand curve does not shift. D) There is not enough information to tell how the change shifts the demand curve for cars.
If the cross elasticity of demand between goods A and B is positive
A) the demands for A and B are both price elastic. B) the demands for A and B are both price inelastic. C) A and B are complements. D) A and B are substitutes.
Product differentiation exists within an industry if
A) there are no substitutes for a product. B) there are close but not perfect substitutes for a product. C) the firm can sell all it wants at the chosen price. D) there is a monopoly.
Which of the following equations represents the equation of exchange?
A) PM = VY B) MY = PV C) MV = PY D) M = VP/Y