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 level of consumption of non-car goods and x! is the quality level of car, and there is a uniform distribution of quality of the cars held by sellers, x!~U[0,100].
In this market, is there is a price, p, at which all cars will sell? If not, prove there is no such price. If so, calculate what prices will work.
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