If buyers cannot distinguish between "lemons" and "cherries" in the used car market but sellers can, the price buyers are willing to pay for used cars will be:
A. high enough to guarantee that at least 50 percent of the used cars offered for sale are "cherries."
B. equal to zero since no one will take the chance of purchasing a "lemon" even if the value of a car known to be a lemon is greater than zero.
C. so low that sellers with "cherries" will be unwilling to sell.
D. so low that sellers with "lemons" will be unwilling to sell.
Answer: C
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Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2012, Oscar Mayer aggressively reduces prices
Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2012 CPI is likely to A) understate the average prices paid by consumers. B) overstate the average prices paid by businesses. C) overstate the average prices paid by consumers. D) understate the average prices paid by businesses. E) neither understate nor overstate the average prices because some consumers will still buy Ballpark Franks.
What are the predictions for the long run equilibrium of the Monetary Approach?
What will be an ideal response?