Why is imperfect information a problem in market economies? Give a current example of how imperfect information causes a disruption in a market.
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Why is imperfect information a problem in market economies? Give a current example of how imperfect information causes a disruption in a market.
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- In circumstances of imperfect information should one expect the market to be efficient? Explain briefly.There is a telling joke about two economists walking down the street. They spot a $20 bill on the sidewalk. One stoops to pick it up, but the other one says, “Don’t bother; if the bill was real, someone would have picked it up already.” The lesson is clear. A strong belief in efficient markets can disable the investor and make it appear that no research effort can be justified. Do you think there are still enough anomalies in the empirical evidence to justify the search for overpriced/underpricedsecurities? Support your answer with examples and new theories in the context of Efficient Market Hypothesis.An insurance company is looking to provide a full coverage health insurance plan to the 10 professors in the economics department at the University of Alabama. Seven of these professors are in great health and will incur no medical expenses this year. Six professors have chronic conditions which require $5000 of medical care per year for each professor. a. If the insurance company is looking to insure the entire group, what will be the actuarially fair premium it charges? b. If professors have the option to enroll in the insurance plan, what will be the profit to the insurance company if it charges the premium in part (a)? c. Name the economic phenomenon occurring in this example.
- What type of economists believe that markets naturally self-correct, and will reward good strategies and punish bad ones?Why is market definition important for economic decision making?In SpringbokVille pieces of paper called bucks are the only item that buyers give to sellers when they purchase goods and services, so it would be common to use, say, 300 bucks to buy a rugby jersey. Prices are posted in terms of bokkies, so you might walk into a supermarket and see that, today, a rugby ball is worth 40 bokkies. Bokkies decay overnight, so no bokkie has any value for more than 24 hours. In SpringbokVille 1. the bokkie fulfils the unit of account function, but it cannot serve as a store of value. II. bucks fulfil the medium of exchange and unit of account functions. Select one: O a. Statement I is correct. Ob Both statements I and II are incorrect. O c. Statement II is correct. Od Both statements I and II are correct.
- models are important ways of simplifying information in economics. if you were to use models to present a coffee shop(such as Starbuck), what crucial features would you include?"Vernon Smith started a series of experiments to see whether basic predictions of the standard economic model about markets would prove correct. [...] Basically, the predictions proved good. A stunning result! Maybe, therefore, it doesn't matter if people are not like homo oeconomicus; the standard economic model can still work." (quote shortened, source: Edward Cartwright in his textbook "Behavioral Economics" (3rd edition, p. 8)). What kind of criticism of the standard economics model does Cartwright refer to? Explain why Vernon's findings can be used to support and uphold the standard model of microeconomics despite unrealistic assumptions?Which of the following would be the least likely thing an economist would study? What new platforms are teens and young adults using to download music and movies? What is the effectiveness of a new $50 million government campaign to keep teens from vaping? What types of movies do children like to watch in the summer? What are the health effects of new energy drinks on young consumers?
- Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person’s health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person? Reconsider the previous health insurance question. Of the choices below, which one is closest to the spread between the minimum possible number of reports and the maximum possible reports to achieve the company’s desired outcome? Reconsider again…What are transaction costs? How does opportunistic behavior tend to increase transaction cost?Suppose an insurance company wants to charge a very healthy individual a premium of $1,200 a year for health coverage. It also wants to charge a less healthy individual a premium of $3,600 a year for health coverage. It is seeking to ascertain from any given customer information regarding his/her health by asking for several pieces of health-related information, such as doctor assessments of the person's health, history of health-related problems, etc. The opportunity cost of a very healthy person securing a health report is $250 and the opportunity cost of a less healthy person securing a health report is $650. Of the choices below, how many reports should the company request to best ensure its paying the right premium to the right person?