Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Question
Chapter 16, Problem 8P
(a)
To determine
Action taken if decision of purchasing of fridge was put to a vote and the roommates were asked to pay
(b)
To determine
Reason for plan not working when each roommate decides on own contribution, and for it to work if there is no asymmetric information.
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Three roommates, Jim, Saleem, and Ritesh, are thinking about buying a new speaker system for their apartment. The speaker system would be a public good if they buy them, and the total cost would be $300 which would be shared equally among the three. Jim values it at $80, Saleem values it at $140, and Ritesh values it at $70. If the speakers are purchased each person gets a payoff equal to their net valuation (valuation minus cost share); if they are not purchased each gets zero payoff.
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One method of solving this problem is through signaling. Signaling is a strategy one uses when they have information. The goal is to use a signal to convince the buyer that the good or service that is being sold is quality and will meet the buyer's wants.
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What information is the signal trying to convey?
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In circumstances of imperfect information should one expect the market to be efficient? Explain briefly.
Chapter 16 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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