1 Lemons Market Assume that there is a market for used cars where the market is characterized by the table below. Further assume that buyers are not budget constrained and have the capacity to buy all of the cares on the market should they choose to. Quality Level High Moderate Low Percentage of Cars Value to Seller Value to Buyer 20% $20,000 $24,000 50% $15,000 $18,000 30% $10,000 $12,000 a. Assume that both sides of the market can accurately identify the quality of the cars. Explain the potential equilibrium of the market. b. Assume instead that neither side of the market knows the quality of a car until after a transaction. Explain the potential equilibrium of the market. c. Assume now that the sellers know the quality of the car they are trying to sell while the buyers only discover this information after a transaction. Can you find a market equilibrium in which all cars sell? Only Moderate and Low? Provide a clear argument along with the equilibrium structure for each case.

1 Lemons Market Assume that there is a market for used cars where the market is characterized by the table below. Further assume that buyers are not budget constrained and have the capacity to buy all of the cares on the market should they choose to. Quality Level High Moderate Low Percentage of Cars Value to Seller Value to Buyer 20% $20,000 $24,000 50% $15,000 $18,000 30% $10,000 $12,000 a. Assume that both sides of the market can accurately identify the quality of the cars. Explain the potential equilibrium of the market. b. Assume instead that neither side of the market knows the quality of a car until after a transaction. Explain the potential equilibrium of the market. c. Assume now that the sellers know the quality of the car they are trying to sell while the buyers only discover this information after a transaction. Can you find a market equilibrium in which all cars sell? Only Moderate and Low? Provide a clear argument along with the equilibrium structure for each case.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

2) Why isn't healthcare just another good? A. Healthcare is an investment B. Healthcare suffers of adverse selection C. Healthcare is a public good D. Healthcare involves asymmetric information E. All of the above
how can ethical considerations shape an approach to negotiating?500 words explanation or more.
1
Question 2 Blank 1 involve the practice of ethical theories or principles. Blank 1 Add your answer
Consider a market for used bicycles, with high and low quality. Sellers value high quality at $260 and low quality at $95. Buyers value high quality at $345 and low quality bicycles at $135. If the buyer cannot observe type, but is willing to pay a price up to $292.5, this implies the buyer believes that fraction quality. are type high 0.82 0.75 0.70 0.66
5 3. Moral hazard in the market for healthcare services leads Question content area bottom Part 1 A. to providers over treating patients.. B. to healthy people not buying health insurance. C. patients to adopt healthy life styles. D. to all people buying health insurance. E.a separating equilibrium.
Which of the following is NOT covered by homeowner's insurance? O Burglary losses O Accidents on your property O Fire O Serious illness
1. Andy lives in an apartment next to Bob. Bob plays loud music, which reduces Andy's enjoyment of the apartment. With no noise, Andy gets $1000 in value from the apart- ment. With noise, Andy gets value of $500. Bob gets $1000 in value from playing his music. He can play quietly so that Andy is undisturbed, but that reduces his valuation by $1300 (so total value -$300). Bob's other option is to stop making playing music entirely. Alternatively, Andy can buy headphones which block out the noise, at a cost of $200. There are thus four possible outcomes 1. Bob plays music loudly, Andy does nothing 2. Bob plays music quietly 3. Bob plays no music at all 4. Bob plays music loudly, Andy gets headphones Consider the following questions: (c) Suppose instead that we are under a damages rule. What will be the outcome? (d) Now suppose that we are back under the property rule, but transaction costs are zero. What will be the outcome (which of (I)-(IV)), and how do you know? (e) What…
Pls help ASAP
52. Which of the following statements is TRUE? (A) COVID-19 is uniquely deadly. (B) Asymptomatic spread is a key driver of COVID-19 outbreaks. (C) Vaccines reduce the spread of COVID-19. (D) People who die with COVID-19 typically have comorbidities.
Empirical evidence suggests that state laws mandating health insurance coverage for alcoholism treatment leads to moral hazard on the part of the insured population. Given this information, what are you most likely to observe in a state that has passed such a law? A. Less use of alcohol treatment facilities B. Lower rates of drunk driving C. Higher rates of alcoholism D. Lower sales of alcohol
4 The service quality-related e-demand factors show a weak connection with the provision of e-government information or services. Select one: a. True b. False