Question 1
Adverse selection and moral hazard arise because of
◦ asymmetric information.
◦ selection problems.
◦ risk aversion.
◦ mechanism designs for dealing with informational problems.
Question 2
You are in the market for a used 2013 Toyota Corolla. You know that half of the 2013 Corollas are lemons and half are peaches. If you could be assured that the Corolla you were buying was a peach, you would be willing to pay up to $12,000. On the other hand, you would only be willing to pay $4,000 for a lemon. You have no ability to discern whether any particular Corolla is a lemon or a peach. Sellers of Corollas, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $3,000 or more and peach sellers will be willing to sell their cars for $9,000 or more. If you are risk neutral, you are willing to offer ________ and ________ are willing to sell you their car.
◦ $4,000 for a car of unknown quality; lemon owners only
◦ $6,000 for a car of unknown quality; lemon owners only
◦ $8,000 for a car of unknown quality; lemon owners only
◦ $9,000 for a car of unknown quality; both lemon and peach owners
Lake 226 at the Experimental Lakes Area divided in half.
To cleanse an open wound, begin close to the wound and work outward in full or half circles.
Drug elimination: half-life to steady state.
Stock Market Question
Iraqi market