HW 3 microeconomics.docx - (A A restaurant decides to offer...

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(A) A restaurant decides to offer an all-you-can-eat buffet that is sold for a fixed price. The restaurant discovers that the customers for this buffet are not its usual clientele. Instead, the customers tend to have big appetites. The restaurant loses money on the buffet. I assume that this example is an example of an Adverse selection, which, according to the book “refers to the tendency of an individual with private information about something that affects a potential trading partner’s costs or benefits to extend an offer that would be detrimental to the trading partner. Costs of adverse selection reduce the gains from trade and can cause market failures.” To solve this problem the restaurant might set up a new system instead of a buffet style, become an all-you-can-eat restaurant, where customers can order as much food as they want but will pay a cost for unfinished food. It will accomplish three goals: 1. Minimize waste of food, which will lead to less expenses.
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  • Spring '14
  • Microeconomics, Adverse selection, buffet, salad bar, potential trading partner, all-you-can-eat buffet, typical salad bar

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