Suppose there are 100 sellers, each offering one used car, and 200 buyers, each wanting one...
Suppose there are 100 sellers, each offering one used car, and 200 buyers, each wanting one used car. A used car could be of high or low quality. There are 50 high-quality cars and 50 low-quality cars. A high-quality used car is worth $10,000 to the buyer whereas a low-quality used car is worth $2,0000 to the buyer. A seller knows the car’s quality.
(a) Suppose a buyer can observe the car’s quality. What is the buyer’s maximum willingness to pay for a high-quality car? What is the buyer’s maximum willingness to pay for a low-quality car?
(b) Now suppose a buyer cannot observe the car’s quality. What is the buyer’s maximum willingness to pay for a used car if the buyer believes that all sellers (high or low quality) are selling their used cars in the market? What is the buyer’s maximum willingness to pay for a used car if the buyer believes that only the low-quality sellers are selling their used cars in the market?
(c) Suppose a seller values a high-quality used car at $8000 and a low-quality car at $1000. What is the equilibrium price in the market if the buyers cannot observe the car’s quality? How does your answer change if a seller values a high-quality used car at $5000?
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Suppose there are 100 sellers, each offering one used car, and
200 buyers, each wanting one...
Drop down options only low-quality sellers no sellers all types of sellers only high quality sellers...
Drop down options
only low-quality sellers
no sellers
all types of sellers
only high quality sellers
Consider a market in which there are many potential buyers and sellers of used cars. Each potential seller has one car, which is either of high quality (a plum) or low quality (a lemon). A seller with a low-quality car is willing to sell it for $3,500, whereas a seller with a high-quality car is willing to SALE sell it for $9,000. A buyer...
Suppose there are 50 sellers of cars in a used car market who know the quality...
Suppose there are 50 sellers of cars in a used car market who know the quality of their car. Of these 50 sellers, 25 own plums. Each owner of a plum is willing to sell her car as long as she receives at least $4000 for it. The remaining sellers own lemons, which each would be willing to sell for at least $2000. There are also 50 potential buyers. a) Suppose that each buyer is willing to pay up to...
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at...
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at $1,500 and good used cars at $2,200, the reservation price of lemon owners is $500, and the reservation price of owners of high-quality used cars is $2,000. The share of current owners who have lemons is 0. For what values of 0 do all the potential sellers sell their used cars? Describe the equilibrium. The most a risk-neutral buyer would be willing to pay...
Consider a version of the Akerlof model in which neither buyers nor sellers observe car quality...
Consider a version of the Akerlof model in which neither buyers nor sellers observe car quality (though somehow – please suspend your disbelief – both buyers and sellers enjoy higher utility from higher quality cars). For this question, please assume that both buyers and sellers recognize that neither can observe car quality. Sellers’ utility function is given by U! = M + x! and buyers’ utility is given by U! = M + 3x! (NOT 3/2) where M is the...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition (...
Suppose the market for used cars has 75 sellers with cars in
good condition and 25 sellers with cars in bad condition
("lemons").
5. Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons"). There are an unlimited number of potential buyers. Buyers are willing to pay $10,000 for cars in good condition while the sellers value these cars at $7,000. Buyers are willing to pay $300...
1) Asymmetric information is when: Buyers and sellers have unequal information Buyers know more than sellers Sellers...
1) Asymmetric information is when: Buyers and sellers have unequal information Buyers know more than sellers Sellers know more than buyers All of the above 2) Asymmetric information leads to the problem 3) Consider the market for health insurance where it costs the insurance company $4,000 to insure a healthy person and $8,000 to insure a sick person. Suppose a healthy person's maximum willingness to pay for health insurance is $5,500 and a sick person's maximum willingness to pay is...
In the farmers’ apple market, there are 20 buyers and 20 sellers. Buyers can buy one...
In the farmers’ apple market, there are 20 buyers and 20 sellers. Buyers can buy one bushel of apples at most and sellers can sell one bushel at most. Ten of the buyers have Buyer Value of $30, and ten have Buyer Value of $20. Fifteen of the sellers have Seller Cost of $10, and five have Seller Cost of $40. In a competitive equilibrium, how many buyers with Buyer Value of $20 purchase apples? (a) 15 (b) 10 (c)...
Thanks! Murali sells used cell phones, and buyers find it difficult to assess the quality of...
Thanks!
Murali sells used cell phones, and buyers find it difficult to assess the quality of this product before buying. Which of the following statements is NOT consistent with the situation in Murali's market? None of the other answers are true Adverse selection of buyers will be present Customers will pay only a low price, even if the phone quality is high. The market will skew toward low quality. Murali may end up selling low-quality used cell phones. When buyers...
can someone explain how to work out part b *edit*: better picture 1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemo...
can someone explain how to work out part b
*edit*: better picture
1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemons); the right panel (b) shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale, lemons would sell for $8,000 and plums would sell for $16,000. Price,() (S/car) (a) Lemons (b) Plums...
Drop down options
only low-quality sellers
no sellers
all types of sellers
only high quality sellers
Consider a market in which there are many potential buyers and sellers of used cars. Each potential seller has one car, which is either of high quality (a plum) or low quality (a lemon). A seller with a low-quality car is willing to sell it for $3,500, whereas a seller with a high-quality car is willing to SALE sell it for $9,000. A buyer...
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at $1,500 and good used cars at $2,200, the reservation price of lemon owners is $500, and the reservation price of owners of high-quality used cars is $2,000. The share of current owners who have lemons is 0. For what values of 0 do all the potential sellers sell their used cars? Describe the equilibrium. The most a risk-neutral buyer would be willing to pay...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
Suppose the market for used cars has 75 sellers with cars in
good condition and 25 sellers with cars in bad condition
("lemons").
5. Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons"). There are an unlimited number of potential buyers. Buyers are willing to pay $10,000 for cars in good condition while the sellers value these cars at $7,000. Buyers are willing to pay $300...
1) Asymmetric information is when: Buyers and sellers have unequal information Buyers know more than sellers Sellers know more than buyers All of the above 2) Asymmetric information leads to the problem 3) Consider the market for health insurance where it costs the insurance company $4,000 to insure a healthy person and $8,000 to insure a sick person. Suppose a healthy person's maximum willingness to pay for health insurance is $5,500 and a sick person's maximum willingness to pay is...
Thanks!
Murali sells used cell phones, and buyers find it difficult to assess the quality of this product before buying. Which of the following statements is NOT consistent with the situation in Murali's market? None of the other answers are true Adverse selection of buyers will be present Customers will pay only a low price, even if the phone quality is high. The market will skew toward low quality. Murali may end up selling low-quality used cell phones. When buyers...
can someone explain how to work out part b
*edit*: better picture
1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemons); the right panel (b) shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale, lemons would sell for $8,000 and plums would sell for $16,000. Price,() (S/car) (a) Lemons (b) Plums...
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