Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling. but buyers do not Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30.000, and a low quality used car is worth $15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. OD. Itis not possible to solve the asymmetric information problem in this market.
Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling. but buyers do not Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30.000, and a low quality used car is worth $15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. OD. Itis not possible to solve the asymmetric information problem in this market.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter20: The Problem Of Adverse Selection Moral Hazard
Section: Chapter Questions
Problem 20.1IP
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