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

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

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter3: Economic Decision Makers

Section: Chapter Questions

Problem 1.3P

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Please answer precisely and clearly. thank you.

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.

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