Econ questions for final study

Question

If consumers are not able to differentiate low-quality from high-quality versions of a similar good,

(a) the price of the high-quality good will be higher, in equilibrium.

(b) the price of the high-quality good will be lower, in equilibrium.

(c) the prices of the two good s will be the same, in equilibrium.

(d) None of the above.

PART 2:

If there are no transaction costs, does the allocation of resources depend on the assignment of property rights?

(a) Yes. The allocation will favour the one awarded the property rights.

(b) Yes. The allocation will favour the one not awarded the property rights.

(c) No. The allocation will be the same regardless of who is awarded the property rights.

Answer 1

For the first part think about this. You want to buy something that will be either really good or just ok.. On average you will get something that is Pretty good.. The People that produce something that is really good will only be offered a pretty good price. Firms providing only an ok good will also be offered a pretty good price. So the price of the really good price will be lower than it would be if consumers could see the quality difference.

For the second question The efficient allocation of resources requires the value of the marginal products = their respective prices which does not depend upon who owns the resources. That is, the best way to use resources does not depend upon who owns them

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Lenny