Ted went to the market to buy Good X. He was willing to pay up to $2.50 per unit of the good
However, he expected some units of the good to be defective. Therefore, when the seller asked for a price of $2.30 per unit, he refused to pay more than $2 for each unit. If the seller knows which units of the good are defective, what is most likely to happen in this case?
Ted valued each unit of Good X at $2.50, while the seller valued it at $2.30. If Ted had perfect information about the quality of the good, trade would have taken place at a price between $2.30 and $2.50. However, because Ted was unaware of the quality of the good and had a lower value for defective units of the good, he was willing to pay only $2 per unit. At $2, the seller would not be willing to give him good units of the good because he he had a higher value for those units. As a result, Ted would end up buying defective units of Good X. Such a phenomenon is commonly known as adverse selection.
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A) raises the natural B) raises the nominal C) lowers the natural D) lowers the nominal
In order to understand how the price of a good is determined in the free market, one must account for the
A. purchasers exclusively. B. sellers exclusively. C. governmental agencies exclusively. D. purchasers and sellers.
Debt service
A) is rarely an issue for high-income countries. B) always makes a country worse off for having borrowed. C) is a problem when the amount of debt is small relative to the size of the economy. D) tends to benefit low- and middle-income countries at the expense of high-income countries.
Ceteris paribus, if the Fed sells bonds through open market operations, the money
A. Demand curve should shift rightward. B. Supply curve should shift leftward. C. Supply curve should shift rightward. D. Demand curve should shift leftward.