Deck 9: Imperfect Information, External Benefits, and External Costs

Question 1

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums highquality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemonslow quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemonslow quality) }\end{array} \\\hline 1 & 10 & 15 & 50 \% \\2 & 12 & 8 & 40 \% \\3 & 15 & 15 & 50 \%\\\hline \end{array}$
Table 9.1

-Table 9.1 represents 3 markets for used computers. Which of the markets in Table 14.1 are in equilibrium?

A)1 only
B)2 only
C)3 only
D)2 and 3

Answer 1

2 and 3

Question 2

If the seller knows more about the good than the buyer knows there exists:

A)an externality.
B)asymmetric information.
C)moral hazard.
D)a public goods problem.

Answer 2

asymmetric information.

Question 3

Suppose buyers in the used car market are willing to pay $4,000 for a plum high -quality)used car and $2,000 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)$2000
B)$3000
C)$3500
D)$4000

Answer 3

$3000

Question 4

In some markets for used goods:

A)the seller has more information than the buyer about the quality of the good.
B)the buyer has more information than the seller about the quality of the good.
C)low-quality used goods will be underpriced.
D)the quality of used goods sold in the market will typically rise over time.

Question 5

A mixed market is one in which:

A)consumers can be buyers and sellers and producers can be sellers and buyers.
B)there are different qualities of a good being sold in the market and there is imperfect information about the quality of each good.
C)a seller of a good requires that the purchase of one good be tied to the purchase of another.
D)demand is positively sloped and supply is negatively sloped.

Question 6

In markets with imperfect information

A)buyers and sellers will use resources to acquire information before making decisions.
B)buyers will use resources to acquire information before making a decision, but sellers do not need to acquire additional information before making a decision.
C)sellers will use resources to acquire information before making a decision, but buyers do not need to acquire additional information before making a decision.
D)neither buyers nor sellers will be able to acquire information in order to make decisions.

Question 7

Suppose buyers in the used car market are willing to pay $8,000 for a plum high -quality)used car and $3,000 for a lemon low-quality)used car. If buyers believe that 20% of the used cars on the market are lemons low quality), what would they be willing to pay for a used car?

A)$7,000
B)$6,000
C)$5,000
D)$4,000

Question 8

There exists asymmetric information in a market:

A)if both sides of the market have the same information about the good.
B)only if buyers have better information about the good than sellers.
C)only if sellers have better information about the good than buyers.
D)if either buyers or sellers have better information than the other group.

Question 9

If buyers believe that the percentage of high quality goods on the market is greater than the actual percentage of high quality goods on the market

A)buyers will be willing to pay a price that is higher than the price they would pay with perfect information.
B)the most that buyers will be willing to pay is less than the price they would pay with perfect information.
C)sellers of low quality goods will be driven from the market.
D)the market will be in a short run equilibrium.

Question 10

Suppose buyers in the used car market are willing to pay $6,000 for a plum high -quality)used car and $3,000 for a lemon low-quality)used car. If buyers believe that 75% of the used cars on the market are lemons low quality), what would they be willing to pay for a used car?

A)$4,250
B)$4,000
C)$3,750
D)$3,500

Question 11

Which of the following is the least likely example of asymmetric information?

A)an insurance company and a client who just obtained a driver license
B)a seller of used cars and a prospective customer
C)a seller of fresh fruit and a buyer
D)a retailer of music CDs and a buyer

Question 12

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

Question 13

Which of the following is the least likely example of asymmetric information?

A)King Solomon and two women who claim to be the mother of a baby
B)a job applicant and a prospective employer
C)an auto mechanic and a transient customer
D)a retailer of used books and prospective customers

Question 14

Asymmetric information exists in the market for used cars because:

A)sellers have better information concerning the quality of used cars than buyers.
B)buyers have better information concerning the quality of used cars than sellers.
C)buyers and sellers have equal information concerning the quality of used cars.
D)it is impossible for buyers or sellers to determine the quality of used cars.

Question 15

If in the market for used bikes only sellers can distinguish between good quality and bad quality used bikes, then in that market there exists:

A)perfect information.
B)asymmetric information.
C)public information.
D)duopoly information.

Question 16

Which one of the following is an example of asymmetric information?

A)A supermarket repackages packages of stale meat and sells them.
B)A homeowner knowingly sells a house that has hidden electrical problems.
C)A company hires an employee who has an addiction to sleeping pills.
D)all of the above

Question 17

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums highquality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemonslow quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemonslow quality) }\end{array} \\\hline 1 & 10 & 15 & 50 \% \\2 & 12 & 8 & 40 \% \\3 & 15 & 15 & 50 \%\\\hline \end{array}$
Table 9.1

-Table 9.1 represents 3 markets for used computers. Which of the markets in Table 14.1 are NOT in equilibrium?

A)1 only
B)2 only
C)3 only
D)1 and 3

Question 18

Relative to a market with perfect information, in a market with imperfect information

A)some goods will be sold in small quantities or not at all.
B)more than the equilibrium quantity of goods will be sold.
C)the equilibrium quantity will be sold, but at a price higher than the equilibrium price.
D)the equilibrium quantity will be sold for the equilibrium price.

Question 19

One assumption of the basic model of supply and demand is that

A)buyers and sellers have enough information to make informed choices.
B)buyers and sellers will benefit equally from a voluntary transaction.
C)sellers will always have more information than buyers.
D)buyers will always have more information than sellers.

Question 20

In equilibrium in a mixed market

A)the percent of low quality goods on the market equals the buyersʹ estimate of the percent of low quality goods on the market.
B)the percent of low quality goods on the market equals the sellersʹ estimate of the percent of low quality goods on the market.
C)50% of the goods on the market are low quality and 50% are high quality.
D)all low quality goods have been driven out of the market.

Question 21

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low-quality)used bike. If buyers have pessimistic expectations about the used bikes in the market, how many used plums high- quality used bikes)will be sold?

A)0
B)8
C)12
D)16

Question 22

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers believe that 50% of used bikes in the market are lemons low quality), what fraction of used bikes sold will actually be plums high quality)?

A)8/30
B)22/30
C)8/22
D)30/30

Question 23

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers believe that 50% of the used bikes are lemons low quality), how much will they be willing to pay for a used bike?

A)$50
B)$80
C)$125
D)$200

Question 24

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers believe that 50% of used bikes are lemons low quality), how many plums high quality)will be supplied by sellers?

A)8
B)12
C)16
D)22

Question 25

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers have pessimistic expectations about the used bikes in the market, what number of used bikes sold will actually be lemons low quality)?

A)8
B)12
C)16
D)22

Question 26

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers believe that 50% of used bikes in the market are lemons low quality), what fraction of used bikes sold will actually be lemons low quality)?

A)8/30
B)22/30
C)8/22
D)30/30

Question 27

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that all of the used cameras in the market are lemons low quality), what number of used cameras sold will actually be lemons low quality)?

A)10
B)15
C)20
D)25

Question 28

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. Initially buyers believe that 50% of used bikes in the market are lemons low quality). Compared to the outcome with neutral expectations, how many fewer bikes are sold in equilibrium?

A)8
B)12
C)18
D)22

Question 29

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that 50% of the used cameras in the market are lemons low quality), how much will pay for a used camera?

A)$25
B)$50
C)$75
D)$125

Question 30

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums highquality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemonslow quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemonslow quality) }\end{array} \\\hline 1 & 10 & 15 & 50 \% \\2 & 12 & 8 & 40 \% \\3 & 15 & 15 & 50 \%\\\hline \end{array}$
Table 9.1

-In Table 9.1, market 1 would be in equilibrium if buyers believed lemons accounted for:

A)60% of the market.
B)55% of the market.
C)45% of the market.
D)40% of the market.

Question 31

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that 50% of the used refrigerators in the market are lemons low quality), how much will they be willing to pay for a used refrigerator?

A)$100
B)$200
C)$250
D)$300

Question 32

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that 50% of used refrigerators in the market are lemons low quality), how many plums high quality)will be supplied by sellers?

A)50
B)125
C)175
D)250

Question 33

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums highquality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemonslow quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemonslow quality) }\end{array} \\\hline 1 & 10 & 15 & 50 \% \\2 & 12 & 8 & 40 \% \\3 & 15 & 15 & 50 \%\\\hline \end{array}$
Table 9.1

-Refer to Table 9.1. In which market do buyers underestimate the chance of getting a lemon?

A)1 only
B)2 only
C)3 only
D)1 and 3 only

Question 34

Figure 9.1
Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum high-quality)used bike and $50 for a lemon low -quality)used bike. If buyers believe that 50% of used bikes are lemons low quality), how many lemons low quality)will be supplied by sellers?

A)8
B)12
C)16
D)22

Question 35

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that 50% of used cameras in the market are lemons low quality), how many plums high quality)will be supplied by sellers?

A)10
B)15
C)20
D)25

Question 36

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that 50% of used cameras in the market are lemons low quality), what fraction of used cameras sold will actually be lemons low quality)?

A)10/25
B)10/35
C)25/35
D)All of the cameras sold will be lemons.

Question 37

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. Initially buyers believe that 50% of used cameras in the market are lemons low quality). Compared to the outcome with neutral expectations, how many fewer cameras are sold in equilibrium?

A)10
B)15
C)20
D)25

Question 38

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that 50% of used cameras in the market are lemons low quality), what fraction of used cameras sold will actually be plums high quality)?

A)10/25
B)10/35
C)25/35
D)None of the cameras sold will be plums.

Question 39

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that 50% of used refrigerators in the market are lemons low quality), how many lemons low quality)will be supplied by sellers?

A)50
B)125
C)175
D)250

Question 40

Figure 9.2
Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum high-quality)used camera and $25 for a lemon low-quality)used camera. If buyers believe that 50% of used cameras in the market are lemons low quality), how many lemons low quality)will be supplied by sellers?

A)10
B)15
C)20
D)25

Question 41

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons low quality), how many plums will be supplied by sellers?

A)50
B)60
C)150
D)200

Question 42

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that all of the used refrigerators in the market are lemons low quality), what number of used refrigerators sold will actually be lemons low quality)?

A)50
B)125
C)175
D)250

Question 43

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons low quality), what is consumersʹ willingness to pay $W)?

A)$100
B)$200
C)$300
D)$400

Question 44

Figure 9.5
Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum high-quality)used car and $3,000 for a lemon low-quality)used car. If buyers believe that 80% of used cameras in the market are lemons low quality), what is consumersʹ willingness to pay $X)?

A)$5,000
B)$3,400
C)$3,000
D)$1,700

Question 45

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that 50% of used refrigerators in the market are lemons low quality), what fraction of used refrigerators sold will actually be plums high quality)?

A)50/250
B)50/300
C)250/300
D)None of the refrigerators sold will be plums.

Question 46

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low -quality)used refrigerator. Compared to the situation when buyers have neutral expectations, if buyers believed that fewer than 50% of used refrigerators are lemons low -quality)

A)more plums high-quality)used refrigerators would be on the market.
B)fewer plums high-quality)used refrigerators would be on the market.
C)fewer lemons low-quality)used refrigerators would be on the market.
D)the same total number of used refrigerators would be on the market, but more of them would be plums high-quality)used refrigerators.

Question 47

Figure 9.5
Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum high-quality)used car and $3,000 for a lemon low-quality)used car. Initially buyers believe that 80% of used cameras in the market are lemons low quality). Compared to the outcome with these initial expectations, how many fewer cars are sold in equilibrium?

A)50
B)80
C)110
D)The number of cars sold in equilibrium is the same as the outcome with neutral expectations.

Question 48

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. Initially buyers believe that 50% of used refrigerators in the market are lemons low quality). Compared to the outcome with neutral expectations, how many fewer refrigerators are sold in equilibrium?

A)50
B)125
C)175
D)250

Question 49

Figure 9.5
Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum high-quality)used car and $3,000 for a lemon low-quality)used car. If buyers believe that 80% of used cameras in the market are lemons low quality), what percent of used cars sold will actually be plums?

A)20%
B)25%
C)33.33%
D)75%

Question 50

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons low quality), how many lemons will be supplied by sellers?

A)50
B)60
C)150
D)200

Question 51

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 8 & 2 & 20 \% \\2 & 6 & 14 & 60 \% \\3 & 8 & 8 & 35 \%\\\hline\end{array}$
Table 9.2

-In Table 9.2, market 2 would be in equilibrium if buyers believed lemons account for:

A)55% of the market.
B)65% of the market.
C)70% of the market.
D)80% of the market.

Question 52

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. At any price between $X and $Z,

A)only plums will be supplied.
B)only lemons will be supplied.
C)both plums and lemons will be supplied
D)neither plums nor lemons will be supplied.

Question 53

Figure 9.5
Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum high-quality)used car and $3,000 for a lemon low-quality)used car. If buyers believe that 80% of used cameras in the market are lemons low quality), how many plums will be supplied in the market?

A)30
B)40
C)70
D)120

Question 54

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. If buyers believe that all of used digital cameras in the market are lemons low quality), what number of used digital cameras sold will actually be lemons?

A)50
B)60
C)110
D)150

Question 55

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. If buyers believe that 50% of used digital cameras in the market are lemons low quality), what percent of used digital cameras sold will actually be lemons? low-quality)?

A)25%
B)50%
C)75%
D)100%

Question 56

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 8 & 2 & 20 \% \\2 & 6 & 14 & 60 \% \\3 & 8 & 8 & 35 \%\\\hline\end{array}$
Table 9.2

-Table 9.2 represents 3 markets for used guitars. Which of the markets in Table 9.2 are NOT in equilibrium?

A)1 only
B)2 only
C)3 only
D)2 and 3

Question 57

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 8 & 2 & 20 \% \\2 & 6 & 14 & 60 \% \\3 & 8 & 8 & 35 \%\\\hline\end{array}$
Table 9.2

-In Table 9.2, market 3 would be in equilibrium if buyers believed plums account for:

A)30% of the market.
B)40% of the market.
C)50% of the market.
D)60% of the market.

Question 58

Figure 9.3
Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum high-quality)used refrigerator and $100 for a lemon low-quality)used refrigerator. If buyers believe that 50% of used refrigerators in the market are lemons low quality), what fraction of used refrigerators sold will actually be lemons low quality)?

A)50/250
B)50/300
C)250/300
D)All of the refrigerators sold will be lemons.

Question 59

Figure 9.4
Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum high-quality)used digital camera and $200 for a lemon low-quality)used digital camera. Initially buyers believe that 50% of used digital cameras in the market are lemons low quality). Compared to the outcome with neutral expectations, how many fewer digital cameras are sold in equilibrium?

A)90
B)110
C)140
D)The number of cameras sold in equilibrium is the same as the outcome with neutral expectations.

Question 60

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 8 & 2 & 20 \% \\2 & 6 & 14 & 60 \% \\3 & 8 & 8 & 35 \%\\\hline\end{array}$
Table 9.2

-Table 9.2 represents 3 markets for used guitars. Which of the markets in Table 9.2 are in equilibrium?

A)1 only
B)2 only
C)3 only
D)2 and 3

Question 61

You are responsible for purchasing 20 used computers for your company. Red brand computers costs $1,250 and Green brand computers cost $1,800. Based on experience, you believe that 60% of Red Brand computers are lemons low quality)while 20% of green brand computers are lemons low quality). You are willing to pay $1,000 for a known lemon and $2,000 for a known plum. Which brand do you purchase?

A)red
B)green
C)indifferent between brands
D)donʹt buy either brand

Question 62

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-In Table 9.3, market 3 would be in equilibrium if buyers believed lemons account for:

A)45% of the market.
B)50% of the market.
C)55% of the market.
D)60% of the market.

Question 63

When sellers have more information about the quality of a good than buyers do, a relatively large share of the goods in the market will be low-quality goods. This is the _______ problem.

A)free-rider
B)law of diminishing returns
C)adverse selection
D)moral hazard

Question 64

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 2 & 20 & 80 \% \\2 & 4 & 16 & 80 \% \\3 & 6 & 12 & 50 \%\\\hline \end{array}$ Table 9.4

-Table 9.4 represents 3 markets for used motorcycles. Which of the markets in Table 9.4 are NOT in equilibrium?

A)1 only
B)2 only
C)3 only
D)1 and 3

Question 65

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 2 & 20 & 80 \% \\2 & 4 & 16 & 80 \% \\3 & 6 & 12 & 50 \%\\\hline \end{array}$ Table 9.4

-In Table 9.4, market 3 would be in equilibrium if buyers believed plums accounted for:

A)11.11% of the market.
B)22.22% of the market.
C)33.33% of the market.
D)66.67% of the market.

Question 66

Suppose you notice that the market for used bikes is dominated by lemons low -quality bikes). In such a situation, if you are a buyer of used bikes, you are faced with:

A)a positive externality.
B)perfect information.
C)an adverse selection problem.
D)symmetric information.

Question 67

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-In Table 9.3, market 1 would be in equilibrium if buyers believed lemons account for:

A)about 83.33% of the market.
B)about 71.43% of the market.
C)about 66.67%% of the market.
D)about 42.86% of the market.

Question 68

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 2 & 20 & 80 \% \\2 & 4 & 16 & 80 \% \\3 & 6 & 12 & 50 \%\\\hline \end{array}$ Table 9.4

-In Table 9.4, market 1 would be in equilibrium if buyers believed lemons accounted for:

A)about 90.91% of the market.
B)about 74.5% of the market.
C)about 63.25% of the market.
D)about 57.65% of the market.

Question 69

Which of the following is NOT an example of the adverse selection problem?

A)Buyers in a market for used cars must choose from an undesirable selection of used cars.
B)An insurance company must choose one price for its coverage for both high -cost and low-cost people.
C)Commercial banks would rather use credit rationing than raising interest rates in the presence of excess demand for loans.
D)An insured motorist drives more recklessly.

Question 70

Suppose buyers in the used car market are willing to pay $3,500 for a plum high -quality)used car and $1,500 for a lemon low-quality)used car. If buyers believe that 30% of the used cars on the market are lemons low quality), what would they be willing to pay for a used car?

A)$2,000
B)$2,500
C)$2,900
D)$3,500

Question 71

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 2 & 20 & 80 \% \\2 & 4 & 16 & 80 \% \\3 & 6 & 12 & 50 \%\\\hline \end{array}$ Table 9.4

-Table 9.4 represents 3 markets for used motorcycles. Which of the markets in Table 9.4 are in equilibrium?

A)1 only
B)2 only
C)3 only
D)1 and 3

Question 72

In a market with an adverse selection problem:

A)one side of the market has better information about the goods than the other.
B)the uninformed side of the market must choose from an undesirable selection of goods.
C)some high-quality goods are sold but fewer than would be sold in a market with perfect information.
D)all of the above

Question 73

You are responsible for purchasing 25 used cars for your company. Star Brand cars costs $7,500 and Diamond Brand cars cost $6,000. Based on experience, you believe that 20% of Star Brand cars are lemons low quality)while 40% of Diamond Brand cars are lemons low quality). You are willing to pay $5,000 for a known lemon and $12,000 for a known plum. Which brand do you purchase?

A)Star
B)Diamond
C)indifferent between brands
D)donʹt buy either brand

Question 74

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-Table 9.3 represents 3 markets for used stereos. Which of the markets in Table 9.3 are NOT in equilibrium?

A)1 only
B)2 only
C)3 only
D)1, 2, and 3

Question 75

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) } \\\text { Supplied }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 8 & 2 & 20 \% \\2 & 6 & 14 & 60 \% \\3 & 8 & 8 & 35 \%\\\hline\end{array}$
Table 9.2

-Refer to Table 9.2. In which market do buyers underestimate the chance of getting a lemon?

A)1 only
B)2 only
C)1 and 3 only
D)2 and 3 only

Question 76

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-Table 9.3 represents 3 markets for used stereos. Which of the markets in Table 9.3 are in equilibrium?

A)1 only
B)2 only
C)3 only
D)none of the above

Question 77

If the market for used computers has only lemons low-quality computers)then the market:

A)is an example of a thick market.
B)suffers from an adverse selection problem.
C)is a type of monopoly.
D)must be monopolistically competitive.

Question 78

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-Refer to Table 9.3. In which market do buyers underestimate the chance of getting a lemon?

A)1 only
B)2 only
C)3 only
D)all of the above

Question 79

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 5 & 25 & 70 \% \\2 & 10 & 20 & 60 \% \\3 & 15 & 15 & 40 \%\\\hline \end{array}$ Table 9.3

-In Table 9.3, market 2 would be in equilibrium if buyers believed plums account for:

A)about 16.67% of the market.
B)about 33.33% of the market.
C)about 66.67% of the market.
D)about 88.89% of the market.

Question 80

$\begin{array}{cccc}\hline \text { Markets } & \begin{array}{l}\text { Plums high quality) }\end{array} & \begin{array}{l}\text { Lemons low quality) } \\\text { Supplied }\end{array} & \begin{array}{c}\text { \% Buyers Believe are } \\\text { Lemons low quality) }\end{array} \\\hline 1 & 2 & 20 & 80 \% \\2 & 4 & 16 & 80 \% \\3 & 6 & 12 & 50 \%\\\hline \end{array}$ Table 9.4

-Refer to Table 9.4. In which market do buyers underestimate the chance of getting a lemon?

A)1 and 2 only
B)1 and 3 only
C)2 and 3 only
D)none of the above