Suppose buyers in the used car market are willing to pay $5,000 for a plum (high-quality) used car and $2,500 for a lemon (low-quality) used car. If buyers believe that 50% of the used cars on the market are lemons (low quality), what would they be willing to pay for a used car?
A. $2500
B. $3000
C. $3750
D. $5000
Answer: C
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In the Heckscher-Ohlin model, when two countries begin to trade with each other
A) the relative prices of traded goods in the two countries converge. B) relative factor prices in the two countries diverge. C) benefits from trade are evenly distributed between the two countries. D) all factors in both countries will gain from trade. E) all factors in one country will gain, but there may be no gains in the other country.
If a monopolist's marginal revenue exceeds its marginal cost at its current level of output, then to maximize its profit the monopolist should:
A. do nothing. B. increase output until marginal revenue equals marginal cost. C. increase output until price equals marginal cost. D. decrease output in order to increase the gap between marginal revenue and marginal cost.
If a developing country has sufficient reserves, the buying and selling of foreign currency by the central bank is:
A. likely to have a much smaller impact on the exchange rate than in developed countries. B. completely ineffective on the exchange rate. C. likely to have a much greater impact on the exchange rate than in developed countries. D. likely to have roughly the same impact on the exchange rate as in developed countries.
Which of the following is the best definition of a stock index?
A. A control the Federal Reserve places on the stock market via margin requirements, whereby the Fed indexes margin requirements to inflation. B. A mutual fund made up of a group of stocks and sold through a firm such as Vanguard or Fidelity. C. A category of stocks whose value is indexed to the inflation rate to safeguard the investor against inflation risk. D. A measure of the prices of a group of stocks, such as the Dow Jones Industrial Average or the S&P 500.