You are in the market for a used car. At a used carlot, you know that the Blue Book value of the car youare looking at is between $15,000 and $19,000. Ifyou believe the dealer knows as much about the caras you do, how much are you willing to pay? Why?Assume that you care only about the expected valueof the car you will buy and that the car values aresymmetrically distributed.23. Refer to Problem 22. Now you believe the dealerknows more about the car than you do. How muchare you willing to pay? Why? How can this asymmetric information problem be resolved in a competitivemarket?
You are in the market for a used car. At a used carlot, you know that the Blue Book value of the car youare looking at is between $15,000 and $19,000. Ifyou believe the dealer knows as much about the caras you do, how much are you willing to pay? Why?Assume that you care only about the expected valueof the car you will buy and that the car values aresymmetrically distributed.23. Refer to Problem 22. Now you believe the dealerknows more about the car than you do. How muchare you willing to pay? Why? How can this asymmetric information problem be resolved in a competitivemarket?
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.5P
Related questions
Question
You are in the market for a used car. At a used car
lot, you know that the Blue Book value of the car you
are looking at is between $15,000 and $19,000. If
you believe the dealer knows as much about the car
as you do, how much are you willing to pay? Why?
Assume that you care only about the expected value
of the car you will buy and that the car values are
symmetrically distributed.
23. Refer to Problem 22. Now you believe the dealer
knows more about the car than you do. How much
are you willing to pay? Why? How can this asymmetric information problem be resolved in a competitive
market?
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