Author Question: Suppose the price of crude oil drops from 150 a barrel to 120 a barrel. The quantity bought remains ... (Read 43 times)

nelaaney · **on:** Jul 1, 2018

Suppose the price of crude oil drops from 150 a barrel to 120 a barrel. The quantity bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example would be

A) -0.5.
B) infinity.
C) -1.0.
D) 0.

Question 2

Explain why it is unwise to bid more than your valuation of the good in a sealed bid second-price auction.

What will be an ideal response?

Jsherida · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

D

Answer to Question 2

Assume you have a valuation of the good equal to 50. The price the winning bidder pays is equal to the second highest bid. If you bid 70 and win you will pay less than 50 if the second-highest bid (SHB) is less or equal to 50. In this case you are as well off as bidding 50. If you end up paying more you lose because you are paying more than your valuation of the good. So you are either as well off or worse off than bidding your highest valuation.