EC270 Study Guide - Quiz Guide: Fire Detection, Monopoly, Risk Premium
Document Summary
Ec370 exercises set 5-b more exercises on ch. Suppose our decision maker"s (dm) utility function for money or wealth is, = . Dm faces an event with two possible outcomes with payoffs, 0 and 16. Label in the graph the %&", the fair insurance premium, (, and the risk premium, ): adverse selection: lemons" market. Suppose 100 cars will be offered on the used-car market. At ,000: moral hazard in owner-manager relationship. Aaron sells jewelry at a kiosk in conestoga mall and earns a flat daily wage of . Betty owns the kiosk and wants to redesign a wage schedule that will induce aaron to work hard. Aaron engages with the shoppers in the mall and works hard to sell them jewelry, the kiosk makes a high daily net profit of with probability 0. 8 and a low daily net profit of with probability 0. 2.
