For those markets in which asymmetric information is prevalent,would you agree or disagree with each ofthe following?Explain briefly a. The government should subsidize Consumer Reports. buyers or sellers a problem that leads to inefficient markets or market collapse.Subsidizing the gathering and publishing of information can be advantageous in general because it helps consumers make better decisions and promotes honesty on the part ofthe firm Although Consumer Reports provides evaluations for products rangingfrom hamburgers to washing endorsement of a product.While government support of Consumer Reports would be likely to increase the ability of consumers to distinguish between high-and bw-quality goods it is probable that the Consumers Union. publisher of Consumer Reports,would rejeet government subsidization because suh taint the objectivity of the organization Note that thegoverment has already provided an indirect subsidy to the publication by granting the Consumers Union nonprofit status. The government should impose quality standards-e.g.,firms should not be allowed to sell low-quality items. Option b involves a cost of monitoring.After imposing quality standards the government must either administratively monitor the quality of goods adjudicate disputes between the public and the manufactu Note however.that low-quality goods may be preferred if they are sufficiently cheaper The producer of a high-quality good will probably want to offer an extensive warranty. This option provides the least-cost solution to the problems of asymmetric information.It allows the producer to distinguish its products from low-quality goods because it is more costly for the w-quality producer to offeran extensive warranty than for the high-quality producer to oferone The government should require all firms to offer extensive warranties By requiring all firms to offerextensive warranties,the government negates the market signaling value of warranties offered by the producers of high-quality goods. 9.Two used car dealerships compete side by side on a main road.The first. Harry's Cars,always sells high-quality cars that it carefully inspects and,if sary, ervices. On average,it costs Harry $8000 to buy and service each car thatitsels The second dealership,Lew's Motors,always sells lower-quality cars On average,it costs Lew only $5,000 for each car that it sells.If consumers knew the quality of the used cars they were buying,they would gladly pay $10,000 on average for Harry's cars,but only $7.000 on average for Lew's cars.For those markets in which asymmetric information is prevalent, would you agree or disagree with each of the following? Explain briefly: a. The government should subsidize Consumer Reports. Asymmetric information implies an unequal access to information by either buyers or sellers, a problem that leads to inefficient markets or market collapse. Subsidizing the gathering and publishing of information can be advantageous in general because it helps consumers make better decisions and promotes honesty on the part of the firm. Although Consumer Reports provides evaluations for products ranging from hamburgers to washing machines, it refuses to let its name be used as an endorsement of a product. While government support of Consumer Reports would be likely to increase the ability of consumers to distinguish between high- and low-quality goods, it is probable that the Consumers Union, publisher of Consumer Reports, would reject government subsidization because such subsidization might taint the objectivity of the organization. Note that the government has already provided an indirect subsidy to the publication by granting the Consumers Union nonprofit status. b. The government should impose quality standards — e.g., firms should not be allowed to sell low-quality items. Option b involves a cost of monitoring. After imposing quality standards, the government must either administratively monitor the quality of goods or adjudicate disputes between the public and the manufacturers. Note, however, that low-quality goods may be preferred if they are sufficiently cheaper. c. The producer of a high-quality good will probably want to offer an extensive warranty. This option provides the least-cost solution to the problems of asymmetric information. It allows the producer to distinguish its products from low-quality goods because it is more costly for the low-quality producer to offer an extensive warranty than for the high-quality producer to offer one. d. The government should require all firms to offer extensive warranties. By requiring all firms to offer extensive warranties, the government negates the market signaling value of warranties offered by the producers of high-quality goods. 9. Two used car dealerships compete side by side on a main road. The first, Harry’s Cars, always sells high-quality cars that it carefully inspects and, if necessary, services. On average, it costs Harry $8,000 to buy and service each car that it sells. The second dealership, Lew’s Motors, always sells lower-quality cars. On average, it costs Lew only $5,000 for each car that it sells. If consumers knew the quality of the used cars they were buying, they would gladly pay $10,000 on average for Harry’s cars, but only $7,000 on average for Lew’s cars