Chapter 16: Problem 1

For each of the following purchases, say whether you would expect the degree of imperfect information to be relatively high or relatively low: a. Buying apples at a roadside stand b. Buying dinner at the neighborhood restaurant around the corner c. Buying a used laptop computer at a garage sale d. Ordering flowers over the Internet for your friend in a different city

Short Answer

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a. The degree of imperfect information is relatively low, as the buyer can physically inspect the apples before purchasing. b. The degree of imperfect information is relatively low, as the buyer has prior knowledge of the restaurant and can ask questions about the menu. c. The degree of imperfect information is relatively high, due to the limited ability to test the laptop's functionality and lack of knowledge about its history or potential issues. d. The degree of imperfect information is relatively high, as the buyer cannot physically examine the flowers and relies on pictures and descriptions, with various potential issues during the delivery process.

Step by step solution

a. Buying apples at a roadside stand

In this case, the degree of imperfect information is relatively low. The reason is that the buyer can physically touch and see the apples before making a purchase, which provides reliable information about their quality, size, and ripeness. Furthermore, the exchange is simple and straightforward, and there is little that cannot be directly observed during the purchasing process.

b. Buying dinner at the neighborhood restaurant around the corner

The degree of imperfect information for this purchase is also relatively low. When purchasing dinner at a familiar restaurant, the buyer already has some knowledge of the quality of food and service offered by the establishment. Additionally, the buyer has the opportunity to ask questions about the menu and any specific ingredients, preparation methods, or portion sizes, which reduces the uncertainty associated with the purchase.

c. Buying a used laptop computer at a garage sale

In this scenario, the degree of imperfect information is relatively high. Buying a used laptop computer at a garage sale does not provide many opportunities to fully test the computer's functionality, nor for the buyer to have a clear understanding of the computer's history, potential issues, or warranty (if any). The lack of information about the computer's true condition and potential problems makes the situation riskier, and there is a higher possibility of hidden costs (e.g., repairs, software updates) associated with the purchase.

d. Ordering flowers over the Internet for your friend in a different city

In this case, the degree of imperfect information is relatively high. When ordering flowers over the Internet, the customer relies on pictures and descriptions provided by the online store, which may not accurately represent the final product that will be delivered. Additionally, there are many variables involved in the delivery process (e.g., flower freshness, correct delivery address, on-time delivery), which creates uncertainty about the quality and timely arrival of the flowers. The inability to physically examine the flowers before purchasing, along with the various potential issues associated with online delivery, contributes to the higher degree of imperfect information for this purchase.

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Short Answer

Step by step solution

a. Buying apples at a roadside stand

b. Buying dinner at the neighborhood restaurant around the corner

c. Buying a used laptop computer at a garage sale

d. Ordering flowers over the Internet for your friend in a different city

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