Consider a Consumer Who Is Searching for the Lowest Price

question 102

Multiple Choice

Consider a consumer who is searching for the lowest price for good X.The consumer knows that 75 percent of the time she will find a store charging $10 and 25 percent of the times she will find a store charging $7.The expected benefit from an additional search is:

• A) $3.
• B) $0.75.
• C) $2.25.
• D) $0.

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Definitions:

Destroyed Money

The process of physically eliminating money from circulation, typically by central banks, to manage a currency's supply.

Check Clearing

The process by which banks settle transactions by transferring money from the check writer's account to the recipient's account.

Federal Funds Rate

The interest rate at which banks lend reserve balances to other banks overnight, on an uncollateralized basis.

Discount Rate

The interest rate charged by central banks for short-term loans to commercial banks.