Unformatted text preview: Workshop 5 P&R 1 Why might a local resident be willing to pay more for an apartment complex in your hometown than might an investor from out-of- the-country who would use it for exactly the same purpose – housing tenants? Those who live in the town or the community are familiar with the value of the apartments, in terms of cost and sentimentality. They are therefore able to evaluate the apartments more appropriately compared to a stranger who has no knowledge of the environment, and therefore unable to determine the true value of the apartments. Since the out of town persons has no knowledge, any decision about the apartment presents a risk. Under the circumstances, of little or incomplete information, they find transactions relating to the apartment more risky compared to someone living in the environment. Subsequently someone from within the community would be more likely to pay more money for an apartment complex in their community, whiles those from outside will want to pay much less for the apartment unit. P&R 2 How might a business offering "full coverage health care for $1,000/month" encounter both moral hazard and adverse selection problems?...
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This note was uploaded on 03/01/2010 for the course ECON 30601E taught by Professor Morvey during the Summer '09 term at Buena Vista.
- Summer '09