e-Bay
Find the price of a new Fender Squier Stratocaster guitar on eBay (you may use either the “Buy it Now” price or the final sale price from a recent auction). Compare this to the price of a new Fender Squier Stratocaster at Sam Ash and Musician’s Friend.
Questions:
- How do the prices compare? Are the prices fairly close?
- Does the existence of the internet reduce price differences among sellers for products such as this?
- Revisit eBay and search for a Fender Stratocaster produced between 1960 and 1979. State the price (the final sale price or the “Buy it Now” price) and the vintage of the item you found. Has the availability of sites such as eBay made it easier to find such items? How does this affect the gains to trade for buyers and sellers?
- Generally, these prices will be fairly similar.
- By making it easier to search for alternative prices, the internet is likely to reduce the variation in price.
- The price and vintage will vary. e-Bay substantially reduces search costs for items such as this. This results in larger gains to trade for both buyers and sellers
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Consider an individual who plans to buy a new home. He has two options: (i) pay for mortgage insurance (that insures the lender in case the borrower defaults), or (ii) pay the lender a higher interest rate for the mortgage. Describe how these two options are related to the concept of risk premium and the lender's aversion to risk. Why does the interest rate on the mortgage differ in these two options?
What will be an ideal response?
The expression "There's no such thing as a free lunch" means
a. if one person gains, someone else must lose. b. each person must pay for exactly what he or she receives. c. when scarce resources are used to produce one good they are unavailable to produce others. d. you cannot have a free lunch at the expense of someone else.