101_PS13_ans_03 - Answers to Problem Set 13 Answers to...

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Answers to Problem Set 13 Answers to Review Questions 1. No consumer could possibly have time to learn about how each of the thousands of individual car models differ from one another. A rational consumer will invest in gathering more information, including taking additional test drives, only up to the point at which the marginal benefit of information is equal to its marginal cost. That will almost surely happen before the consumer test drives every car on the market. 2. Suppose the painter’s reservation price for producing the painting is $5,000, and that, by himself, he would be able to find a buyer willing to pay $10,000 for it. If the gallery owner can find some other buyer willing to pay $30,000, then the owner’s contribution to total economic surplus would be bigger than the painter’s. 3. Suppose used cars offered for sale were the same, on average, as used cars not offered for sale. Then the price of a used car would reflect the value of a used car in average condition. But the owner of a car in above-average condition would be disinclined to sell it at that price. In contrast, owners of used cars in below-average condition would be only too happy to sell at that price. Thus the quality of used cars offered for sale tend to be below average in quality. 4. A seller’s inability to communicate credibly that her car is in good condition will often prevent a valuable exchange. This problem will be less serious in a community in which a strong tradition of honesty enables sellers to make credible claims about the quality of their offerings. 5. People are more likely to supply resources to a successful film producer than an unsuccessful one.
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101_PS13_ans_03 - Answers to Problem Set 13 Answers to...

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