4. Suppose that potential used-car buyers' value high-quality used cars at €10,000 and low-quality used cars at €3,000. Owners of high-quality used cars have a reservation price of €8,600, while the reservation price for owners of low-quality used cars is €2,000. Everyone is risk neutral. The share of current owners who have low-quality cars is. a) For what values of do all the potential sellers sell their used cars? b) If each potential buyer incurs a transaction cost, t = €400, to purchase a used car (the value of the time spent searching), for what values of do all the potential sellers sell their used cars? c) If remains at the value calculated in part a, would all potential sellers sell their used cars when transaction costs equal €400 per person? Would any of the potential sellers sell?
4. Suppose that potential used-car buyers' value high-quality used cars at €10,000 and low-quality used cars at €3,000. Owners of high-quality used cars have a reservation price of €8,600, while the reservation price for owners of low-quality used cars is €2,000. Everyone is risk neutral. The share of current owners who have low-quality cars is. a) For what values of do all the potential sellers sell their used cars? b) If each potential buyer incurs a transaction cost, t = €400, to purchase a used car (the value of the time spent searching), for what values of do all the potential sellers sell their used cars? c) If remains at the value calculated in part a, would all potential sellers sell their used cars when transaction costs equal €400 per person? Would any of the potential sellers sell?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:4. Suppose that potential used-car buyers' value high-quality used cars at €10,000 and low-quality
used cars at €3,000. Owners of high-quality used cars have a reservation price of €8,600, while the
reservation price for owners of low-quality used cars is €2,000. Everyone is risk neutral. The share of
current owners who have low-quality cars is.
a) For what values of do all the potential sellers sell their used cars?
b) If each potential buyer incurs a transaction cost, t = €400, to purchase a used car (the value of the
time spent searching), for what values of do all the potential sellers sell their used cars?
c) If remains at the value calculated in part a, would all potential sellers sell their used cars when
transaction costs equal €400 per person? Would any of the potential sellers sell?
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