4) You have seen how asymmetric information Can reduce the average quality of products sold in a market, as low-quality products drive out high-quality products. For those markets in which asymmetric information is prevalent, would you agree or disagree with each of the following? Explain briefly: a. The government should subsidize Consumer Reports. b. The government should impose quality standards – e.g., firms should not be allowed to sell low-quality items. c. The producer of a high-quality good will probably want to offer an extensive warranty. d. The government should require all firms to offer extensive warranties.

4) You have seen how asymmetric information Can reduce the average quality of products sold in a market, as low-quality products drive out high-quality products. For those markets in which asymmetric information is prevalent, would you agree or disagree with each of the following? Explain briefly: a. The government should subsidize Consumer Reports. b. The government should impose quality standards – e.g., firms should not be allowed to sell low-quality items. c. The producer of a high-quality good will probably want to offer an extensive warranty. d. The government should require all firms to offer extensive warranties.

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter22: Frontiers Of Microeconomics

Section: Chapter Questions

Problem 4PA

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2. A) Discuss health insurance contract? b)What schemes are applicable for routine medical check-up and diagnostic tests?
What is the problem of moral hazard?
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Imagine that you own your business. It does not need to be the same as in other questions, youare allowed to pick a different firm or product. Imagine further that you or your consumers facean asymmetric information problem. a.Please explain in detail what this asymmetric information problem, and who isfacing it (your firm or your consumers).b. Please explain how you solved this problem.
It costs $1 million in R&D to develop a new diabetes treatment. The marginal cost of producing and marketing a treatment, once discovered, is $10. Suppose that Pfizer currently is selling a treatment that is covered by a valid patent, which is set to expire in one year. What is the most likely outcome of a proposed law that would allow generic drug companies to enter any market 5 years before the expiration of the patent covering it? A. More diabetics would use the treatment Pfizer invented, and drug companies would invest more in R&D for future treatments B. Fewer diabetics would use the treatment Pfizer invented, and drug companies would invest more in R&D for future treatments C. More diabetics would use the treatment Pfizer invented, and drug companies would invest less in R&D for future treatments D. Fewer diabetics would use the treatment Pfizer invented, and drug companies would invest less in R&D for future treatments
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2. Suppose your neighbor likes to host parties at their house. They value having these parties at $200. These parties, however, impose a cost on you due to the noise they make. a. If your disutility is $100 from the noise being made, and you have the right to it being quiet, is there a solution that you and your neighbor can agree on? If so, what is it? b. If your disutility is $250 from the noise being made, and you have the right to no noise being made, is there a solution that both of you could agree on? If so, what is it? If not, what can change in terms of property rights to make an agreement possible?
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