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You Are Up Late Watching TV One Night and See

question 42

Essay

You are up late watching TV one night and see an ad from Ronco for the Dial-O-Matic food slicer.You learn that the Dial-O-Matic sells for $29.95.But wait,there is more.Ronco is also including in this deal a set of Ginsu steak knives worth $10.95 and another free gift worth $7.95.Assuming that there is a competitive market for Ronco items,at what price must Ronco be selling this three-item Dial-O-Matic deal to insure the absence of an arbitrage opportunity and uphold the law of one price?


Definitions:

Efficiency

The optimal allocation of resources in order to maximize the production of goods and services and minimize waste.

Government Agency

An organization established by the government to implement policy, carry out public services, or regulate activities within its jurisdiction.

Incentives

Factors, monetary or non-monetary, that motivate individuals or entities to behave in certain ways.

Social Choice

A theoretical framework for analysis of combining individual preferences, interests, or welfare to reach a collective decision or social welfare in a given society.

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