Suppose the Economics Department has a graduation party for its students but as a final test they must show they have learned something about trade. The men are given food when they walk in and the women are given drink. Suppose they have identical preferences where food and drink provide utility U = F?D? . The exchange would be such that
a. both would be guaranteed to be better off than when they entered.
b. both would be guaranteed to be at least as well off as when they entered.
c. the men would end up with more.
d. the women would end up with more.
b
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The price elasticity of new automobile purchases is about 1.2 . This implies that an increase of $1,000 on a $10,000 automobile will
a. reduce the number of autos sold by approximately 1.2 percent. b. increase the consumer expenditures on autos by approximately 1.2 percent. c. reduce the number of autos sold by approximately 12 percent. d. increase consumer expenditures on autos by approximately 12 percent.
Which of these refers to the situation in which one party to an economic transaction takes advantage of knowing more than the other party to the transaction?
A. Moral hazard B. Adverse selection C. Biased selection