One million automobiles have a defect that could cause the car to explode; however, only one of those cars will actually explode. Nobody knows which one car it is. When the car does explode, the victim's family will sue the automaker for $1 million and win. The defect costs $2 per car to repair. What does economics predict about the automaker's decision to repair the defect?
What will be an ideal response?
Correcting the defect will cost $2 million. Not correcting the defect will only cost $1 million. Economics predicts that the automaker will not correct the defect.
Economics
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Suppose banks incur heavy losses and become more cautious, increasing their demand for reserve. Make use of a graph of the loanable funds market to show how the Fed can use open market operations to maintain the same federal funds rate
What will be an ideal response?
Economics
A firm practicing direct price discrimination will charge a higher price to
a. Consumers known to have an elastic demand b. All consumers c. Consumers known to have an inelastic demand d. Consumers known to have a unitary elastic demand
Economics