Log in
Economics
1
answer
0
watching
74
views

Suppose the two rival office supply companies Office Depot and Staples and both adopt price matching policies. If consumers can find lower advertised prices on any items they sell, then Office Depot and Staples guarantee they will match the lower prices. Explain why this pricing policy may not be good news for consumers.

Watch
1
answer
0
watching
74
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Paramjeet Chawla
Paramjeet ChawlaLv8
1 Oct 2020

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Which of the following will increase the short-run aggregate supply?

A. an increase in wages

B. a decrease in the price of capital

C. an increase in government spending on education

D. an increase in consumption spending

2.

All the following explain price stickiness except

Question 2 options:

A. firms choose not to adjust prices until they can assess if changes in sales are temporary or permanent.

B.the more firms produce, the lower the average cost of production. Therefore, firms are willing not raise prices as long as they can sell more.

C. firms may be concerned that consumers may be angered by price increases.

D. firms may be concerned that their rivals may not match their price increases.

3. A movement along the short-run aggregate supply curve in response to a change in the price level is called a

A. determinant of aggregate supply.

B. revealed cost on aggregate supply.

C. change in aggregate supply.

D. change in the aggregate quantity of goods and services supplied.

Chimnesia has two equally sized groups of people: smokers and nonsmokers. Both types of people have utility U = ln(C), where C is the amount of consumption that people have in any period. So long as they are healthy, individuals will consume their entire income of $15,000. If they need medical attention (and have no insurance), they will have to spend $10,000 to get healthy again, leaving them with only $5,000 to consume. Smokers have a 12% chance of requiring major medical attention, while nonsmokers have a 2% chance. Insurance companies in Chimnesia can sell two types of policy. The low deductible (L) policy covers all medical costs above $3,000, while the high deductible (H) policy only covers medical costs above $8,000.

(a) What is the actuarially fair premium for each type of policy and for each group?

(b) If insurance companies can tell who is a smoker and who is a nonsmoker and charges the actuarially fair premiums for each policy and group, which policy will two groups purchase? Compute the expected utility of each group with each policy. Now suppose that smoking status represents asymmetric information: each individual knows whether or not they are a smoker, but the insurance company doesn't.

(c) Explain why it is impossible, at any prices, for both groups to purchase L-policies in this setting.

(d) Mathematically show that it is possible for both groups to purchase insurance, with one group buying L-policies and one group buying H-policies. (show the feasibility from the perspective of smoker, nonsmoker, and insurance company, respectively)

"Grocery stores and gasoline stations in a large city would appear to be examples of competitive markets: there are numerous relatively small sellers, each seller is a price-taker, and the products are quite similar."

How could we argue that these markets are not competitive?

Select one:

a. Most grocery stores and gas stations have a relatively small geographic range; they do not attract consumers from very far away, and thus do not compete with the grocery stores or gas stations across town.

b. The individual grocery stores or gas stations do not have the power to control price on many items that they sell, so they are not able to compete on price.

c. They usually purchase products from the same distributor: i.e., all grocery stores and gas stations buy their Coke products from the same Coke distributor. Thus, individual grocery stores do not really compete with each other; same for individual gas stations.

d. Each grocery store or gas station is so small relative to the size of the market that their actions do not affect the rest of the market, therefore they do not have to behave in a competitive way.

Could each firm face a demand curve that is not perfectly elastic?

Select one:

a. No; since customers aren't willing to spend their morning visiting each grocery store or gas station in a large city to find the best deal, then each firm's demand curve will be perfectly elastic since consumers do not have full information.

b. No; the conditions mentioned (many small sellers, price-takers, homogeneous products) guarantee that each of these industries will be perfectly competitive. Demand will always be perfectly elastic.

c. Yes; if they have some degree of market power (e.g., they can charge slightly higher prices since consumers will not stop at every grocery store in town to find the cheapest beef jerky), then they will not face perfectly elastic demand.

d. Yes; if the individual firm demand curve is horizontal, then demand is not perfectly elastic. This will often be true for small sellers.

How profitable do you expect grocery stores and gasoline stations to be in the long run?

Select one:

a. Even with a small amount of market power, it is still relatively easy to enter and exit these industries. Long-run profits will likely be driven down close to zero.

b. Because of rising prices of both food and gasoline, each of these industries is expected to suffer long-run losses for the foreseeable future.

c. Grocery stores would be expected to enjoy long-run positive profits since they sell a wider variety of products; gasoline stations would be expected to break even or take losses in the long run because of their more limited range of products.

d. Since these firms retain considerable market power (ability to set price), then they are expected to enjoy long-run positive profitability for the foreseeable future.

Can you explain to me the reasoning behind the answers?

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in