3. There are 100 townhouses for sale; half are lemons and half are plums. The owner of a lemon is willing to sell it for $300,000 or more while the owner of a plum is willing to sell it for $360,000 or more. Lemons are worth $320,000 to buyers and plums are worth $380,000 to them. Only sellers know the quality of the townhouses. There are 150 buyers. (i) Which townhouses will be sold in equilibrium? (ii) Explain whether the equilibrium in (i) is Pareto efficient. (iii) Now suppose that the prices at which sellers are willing to sell are uniformly distributed between $300,000 and $360,000. Suppose, also, that a buyer is willing to pay up to $20,000 more than the seller is willing to accept. (For example, if a seller were willing to accept $340,000 for her house, and the buyer knew this, the buyer would be willing to pay up to $360,000.) Explain whether the equilibrium is Pareto efficient.
3. There are 100 townhouses for sale; half are lemons and half are plums. The owner of a lemon is willing to sell it for $300,000 or more while the owner of a plum is willing to sell it for $360,000 or more. Lemons are worth $320,000 to buyers and plums are worth $380,000 to them. Only sellers know the quality of the townhouses. There are 150 buyers. (i) Which townhouses will be sold in equilibrium? (ii) Explain whether the equilibrium in (i) is Pareto efficient. (iii) Now suppose that the prices at which sellers are willing to sell are uniformly distributed between $300,000 and $360,000. Suppose, also, that a buyer is willing to pay up to $20,000 more than the seller is willing to accept. (For example, if a seller were willing to accept $340,000 for her house, and the buyer knew this, the buyer would be willing to pay up to $360,000.) Explain whether the equilibrium is Pareto efficient.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![3. There are 100 townhouses for sale; half are lemons and half are plums. The owner of a
lemon is willing to sell it for $300,000 or more while the owner of a plum is willing to sell it
for $360,000 or more. Lemons are worth $320,000 to buyers and plums are worth
$380,000 to them. Only sellers know the quality of the townhouses. There are 150 buyers.
(i) Which townhouses will be sold in equilibrium?
(ii) Explain whether the equilibrium in (i) is Pareto efficient.
(iii) Now suppose that the prices at which sellers are willing to sell are uniformly
distributed between $300,000 and $360,000. Suppose, also, that a buyer is willing to pay
up to $20,000 more than the seller is willing to accept. (For example, if a seller were
willing to accept $340,000 for her house, and the buyer knew this, the buyer would be
willing to pay up to $360,000.) Explain whether the equilibrium is Pareto efficient.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F55e523e7-e2e6-402b-ad67-45f8eb2bc62b%2F23bc6074-a2fc-415b-9b78-4820c7cab36b%2Fji1ltxt_processed.png&w=3840&q=75)
Transcribed Image Text:3. There are 100 townhouses for sale; half are lemons and half are plums. The owner of a
lemon is willing to sell it for $300,000 or more while the owner of a plum is willing to sell it
for $360,000 or more. Lemons are worth $320,000 to buyers and plums are worth
$380,000 to them. Only sellers know the quality of the townhouses. There are 150 buyers.
(i) Which townhouses will be sold in equilibrium?
(ii) Explain whether the equilibrium in (i) is Pareto efficient.
(iii) Now suppose that the prices at which sellers are willing to sell are uniformly
distributed between $300,000 and $360,000. Suppose, also, that a buyer is willing to pay
up to $20,000 more than the seller is willing to accept. (For example, if a seller were
willing to accept $340,000 for her house, and the buyer knew this, the buyer would be
willing to pay up to $360,000.) Explain whether the equilibrium is Pareto efficient.
Expert Solution
![](/static/compass_v2/shared-icons/check-mark.png)
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![ENGR.ECONOMIC ANALYSIS](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9780190931919/9780190931919_smallCoverImage.gif)
![Principles of Economics (12th Edition)](https://www.bartleby.com/isbn_cover_images/9780134078779/9780134078779_smallCoverImage.gif)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
![Engineering Economy (17th Edition)](https://www.bartleby.com/isbn_cover_images/9780134870069/9780134870069_smallCoverImage.gif)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
![Principles of Economics (MindTap Course List)](https://www.bartleby.com/isbn_cover_images/9781305585126/9781305585126_smallCoverImage.gif)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
![Managerial Economics: A Problem Solving Approach](https://www.bartleby.com/isbn_cover_images/9781337106665/9781337106665_smallCoverImage.gif)
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
![Managerial Economics & Business Strategy (Mcgraw-…](https://www.bartleby.com/isbn_cover_images/9781259290619/9781259290619_smallCoverImage.gif)
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education