12 We assume again the original assumptions of the Akerlof model, but now alter the information assumptions in this exercise. Now assume that neither buyers nor sellers have information about specific car quality, although each group knows the distribution of X, as before. a Assume that there is a market equilibrium price of P = 80. What set of cars will be to non offered in this market? In other words, what is $2(80) under these assumptions? tebuchbDoes adverse selection occur in this situation? c Derive a more general expression for 2(P). For any given P, what is the set of cars that will be offered? d What is the range of P for which at least some cars will be offered and at least some cars will be purchased? Remember that sales do happen when buyers and sellers are indifferent.

12 We assume again the original assumptions of the Akerlof model, but now alter the information assumptions in this exercise. Now assume that neither buyers nor sellers have information about specific car quality, although each group knows the distribution of X, as before. a Assume that there is a market equilibrium price of P = 80. What set of cars will be to non offered in this market? In other words, what is $2(80) under these assumptions? tebuchbDoes adverse selection occur in this situation? c Derive a more general expression for 2(P). For any given P, what is the set of cars that will be offered? d What is the range of P for which at least some cars will be offered and at least some cars will be purchased? Remember that sales do happen when buyers and sellers are indifferent.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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