【正文】 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley When temperature is constant at 90176。 2020 Pearson AddisonWesley When a relationship involves more than two variables, we can plot the relationship between two of the variables by holding other variables constant—by using ceteris paribus. Ceteris paribus means “if all other relevant things remain the same.” Figure shows a relationship among three variables. Graphing Relationships Among More Than Two Variables 169。 2020 Pearson AddisonWesley Variables That are Unrelated Sometimes, we want to emphasize that two variables are unrelated. The two graphs on the next slide show examples of variables that are unrelated. Graphs used in Economic Models 169。 2020 Pearson AddisonWesley Figure (b) is a scatter diagram of inflation and unemployment in the United States during the 2020s. The points for 2020 to 2020 show no relationship between the two variables. But the high unemployment rate of 2020 brought a low inflation rate that year. Graphing Data 169。 2020 Pearson AddisonWesley Economists measure variables that describe what, how, and for whom goods and services are produced. These variables are quantities produced and prices. Figure shows two examples of economic graphs. Graphing Data 169。 2020 Pearson AddisonWesley Insurance panies can do profitable business with everyone by offering coverage with a deductible (or a no claim bonus). The larger the deductible, the lower is the premium. Highrisk people choose policies with the low deductible and high premium. Lowrisk people choose policies with large deductible and low premium. Private Information 169。 2020 Pearson AddisonWesley The Market for Loans Borrowers demand loans. The lower the interest rate, the greater is the quantity of loans demanded. Banks and other lenders supply loans. For a given credit risk, the higher the interest rate the greater is the quantity of loans supplied. Private Information 169。 2020 Pearson AddisonWesley Buyers are willing to pay $25,000 for a good car. Too few good cars are traded. A deadweight loss is created. Private Information 169。 2020 Pearson AddisonWesley The Market for Used Cars A used car might be a lemon—a car that is worth less than a car with no defects. But only the seller knows whether a car is a lemon. The lemon problem is the problem that in a market in which it is not possible to distinguish reliable products from lemons, too many lemons and too few reliable products are traded. How does a market work when it has a lemon problem? Private Information 169。 2020 Pearson AddisonWesley Gains from Trade If Dan pays $1,000 for insurance, his expected wealth is $9,000 and his expected utility is 98 units. Dan gains from insurance. Buying and Selling Risk 169。 2020 Pearson AddisonWesley Buying and Selling Risk Just as buyers and sellers gain from trading goods and services, they can also gain from trading risk. Risk is a bad, not a good, so the good that is traded is risk avoidance. A buyer of risk avoidance can gain because the value of avoiding risk is greater than the price that must be paid to get someone else to bear that risk. The seller of risk avoidance faces a lower cost of risk than the price that people are willing to pay to avoid that risk. 169。 2020 Pearson AddisonWesley Because of diminishing marginal utility, for a loss of wealth or a gain of wealth of equal size, Tania’s pain from the loss exceeds her pleasure from the gain. Decisions in the Face of Uncertainty 169。 2020 Pearson AddisonWesley 169。 2020 Pearson AddisonWesley Will Tania take the risky job? It will depend on how much Tania dislikes risk. Risk Aversion Risk aversion is the dislike of risk. We measure a person’s attitude toward risk by using a utility of wealth schedule and curve. Greater wealth brings greater total utility, but the marginal utility of wealth diminishes as wealth increases. Decisions in the Face of Uncertainty 169。 2020 Pearson AddisonWesley Figure shows the choice under uncertainty. In a telemarketing job, there is a 50 percent chance that Tania will make $5,000 and a 50 percent chance that she will make $1,000. Her expected wealth is $3,000 and her expected utility is 70 units. Decisions in the Face of Uncertainty 169。 2020 Pearson AddisonWesley Value and Cost of Insurance Figure shows that if Dan had $7,000 of wealth with no risk, … he would have the same utility as he has with $10,000 of wealth and 10 percent risk of loss. Buying and Selling Risk 169。 2020 Pearson AddisonWesley Adverse Selection Adverse selection is the tendency for people to enter into agreements in which they can use their private information to their own advantage and to the disadvantage of the less informed party. For example, if Jackie advertises jobs for salespeople at a fixed wage, she will attract lazy salespeople. Hardworking salespeople will prefer to work for someone who pays by results, rather than a fixed wage. The fixedwage contract adversely selects those with private information about their work effort. Private Information 169。 2020 Pearson AddisonWesley In the used car market: Adverse selection exists because there is a greater incentive to offer a lemon for sale. Moral hazard exists because the owner of a lemon has little incentive to take good care of the car, so it is likely to bee even worse. The market for used cars is not working well. Private Information 169。 2020 Pearson AddisonWesley Part (b) shows the market for lemons. Because buyers can now spot a lemon (a car without a warranty) … the price of a lemon is $6,667 and 150 lemons are traded. The market for lemons is efficient. Private Information 169。 2020 Pearson AddisonWesley H