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Winner's curse is more likely to happen at an auction when the...



Winner's curse is more likely to happen at an auction when the value of the good is common knowledge.

1 point


True


False



The tendency for the highest-risk individuals to buy health insurance is known as ______________, and the tendency of the insured to take more risks with their health is known as________________.

1 point


Adverse selection and moral hazard, respectively


The winner's curse and adverse selection, respectively


Adverse selection and natural selection, respectively


The winner's curse and moral hazard, respectively


Moral hazard and adverse selection, respectively


An insurance company suffers a loss of $1000 per accident. Half the population is of high risk type with probability of accident being one, and other half is low risk type with probability of accident being zero.

What is the expected loss per customer?

1 point


$100


$500


$750


$1000


An insurance company suffers a loss of $1000 per accident. Half the population is of high risk type with probability of accident being one, and other half is low risk type with probability of accident being zero. High risk are willing to buy insurance for $1200, and low risk are willing to buy for $400.

What percentage of the population will buy insurance?

1 point


0%


50%


75%


100%


MC_{P}


MCP

​ is the sum of industry marginal costs of production. The equilibrium quantity in the absence of any government intervention is Q_{E}

QE

​, and the optimal quantity according to the benevolent dictator is Q_{O}

QO

​.


At the outcome Q_{E}

QE

​, the size of deadweight loss to society will equal:

1 point


Area C + D + G + H


Area E


Area C + D + E + G + H


Area D+ H


Area C + G

6.

Question 6

MC_{P}

MCP

​ is the sum of industry marginal costs of production. The equilibrium quantity in the absence of any government intervention is Q_{E}

QE

​, and the optimal quantity according to the benevolent dictator is Q_{O}

QO

​.


As per the accompanying figure, we can say that the society is:

1 point


Underproducing


Overproducing


Efficient


In equilibrium

7.

Question 7

MC_{P}

MCP

​ is the sum of industry marginal costs of production. The equilibrium quantity in the absence of any government intervention is Q_{E}

QE

​, and the optimal quantity according to the benevolent dictator is Q_{O}

QO

​.


As per the accompanying figure, we observe which of the following?

1 point


Positive externality


Negative externality



The initial price and quantity are P_{0}

P0

​ and Q_{0}

Q0

​, respectively, and the price ceiling is imposed at the price P_{1}

P1

​. Assume that none of the potential deadweight loss can be avoided and price cannot be raised above P_{1}

P1

​.


The producers get price P_{1}

P1

​ only, and producer surplus is equal to:

1 point


Area D + E + F + G + H


Area A + H


Area D + H


Area H


Area D + E + H

9.

Question 9

The initial price and quantity are P_{0}

P0

​ and Q_{0}

Q0

​, respectively, and the price ceiling is imposed at the price P_{1}

P1

​. Assume that none of the potential deadweight loss can be avoided and price cannot be raised above P_{1}

P1

​.


Which area represents the deadweight loss from the price ceiling?

1 point


Area C + E + F + G


Area C + E


Area F + G


Area A + B + C

10.

Question 10

Which of the following rises due to a positive externality in the market?

1 point


Opportunity cost


Average cost


Marginal benefit


Marginal cost

11.

Question 11

The benevolent dictator subsidizes production due to negative externalities in a market.

1 point


True


False

12.

Question 12

Buyers are willing to purchase original paintings for $1000, and indistinguishable first-copies for $200. Sellers are willing to sell original paintings for $900 and first-copies for $150. Buyers believe that 50% of the paintings in the market are first copies.

Buyers cannot distinguish between original paintings and first-copies, but sellers know with absolute certainty whether the art that they own is an original or a first copy.

Which of the following type of paintings will be traded in the market?

1 point


Only original paintings


Only first-copies


Both originals and first-copies

13.

Question 13

Buyers are willing to purchase original paintings for $1000, and indistinguishable first-copies for $200. Sellers are willing to sell original paintings for $900 and first-copies for $150. Buyers believe that 50% of the paintings in the market are first copies.

Buyers cannot distinguish between original paintings and first-copies, but sellers know with absolute certainty whether the art that they own is an original or a first copy.

What is the average price buyers are willing to pay for a painting?

1 point


$200


$1000


$500


$600

14.

Question 14

Buyers are willing to purchase original paintings for $1000, and indistinguishable first-copies for $200. Sellers are willing to sell original paintings for $900 and first-copies for $150. Buyers believe that 50% of the paintings in the market are first copies.

Buyers cannot distinguish between original paintings and first-copies, but sellers know with absolute certainty whether the art that they own is an original or a first copy.

For what price range will a market exist for both original and first-copy paintings?

1 point


$200-$1000


$150-$600


$900-$1000


$150-$900

15.

Question 15

Buyers are willing to purchase original paintings for $1000, and indistinguishable first-copies for $200. Sellers are willing to sell original paintings for $900 and first-copies for $150. Buyers believe that 50% of the paintings in the market are first copies.

Buyers cannot distinguish between original paintings and first-copies, but sellers know with absolute certainty whether the art that they own is an original or a first copy.

Only first-copies are sold in the market because of which of the following reasons?

1 point


Moral Hazard


Adverse Selection


Winner's Curse


Principal-Agent Problem


Honor Code Agreement

Answer & Explanation
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