Consider a second-hand car market with two kinds of cars, type A which are completely reliable, and type B which break down with probability 1/2. There are 20 car owners, 10 with each kind of car, and 20 potential buyers. The car owners and buyers value a car at 1000 and 1500, respectively if it works and both owners and buyers value a non- working car at zero. Both buyers and owners are assumed to be price takers and risk-neutral. Finally each seller is aware of the type that her car belongs to, but this information is not available to buyers. - What value do buyers and sellers place on type A and type B cars? - How many cars, and of what type(s) are supplied at each price? -What is the demand for cars at each price? How many equilibria are there in the market?
Consider a second-hand car market with two kinds of cars, type A which are completely reliable, and type B which break down with probability 1/2. There are 20 car owners, 10 with each kind of car, and 20 potential buyers. The car owners and buyers value a car at 1000 and 1500, respectively if it works and both owners and buyers value a non- working car at zero. Both buyers and owners are assumed to be price takers and risk-neutral. Finally each seller is aware of the type that her car belongs to, but this information is not available to buyers. - What value do buyers and sellers place on type A and type B cars? - How many cars, and of what type(s) are supplied at each price? -What is the demand for cars at each price? How many equilibria are there in the market?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![Consider a second-hand car market with two kinds
of cars, type A which are completely reliable, and
type B which break down with probability 1/2.
There are 20 car owners, 10 with each kind of car,
and 20 potential buyers. The car owners and
buyers value a car at 1000 and 1500, respectively if
it works and both owners and buyers value a non-
working car at zero. Both buyers and owners are
assumed to be price takers and risk-neutral. Finally
each seller is aware of the type that her car
belongs to, but this information is not available to
buyers.
- What value do buyers and sellers place on type A
and type B cars?
How many cars, and of what type(s) are supplied
at each price?
-What is the demand for cars at each price?
How many equilibria are there in the market?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fafa3a03e-a757-4e0a-8c6e-37c7674548b7%2Fcf9aae6c-da2a-486a-a368-17f4ead6c3a2%2Fypz97cu_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a second-hand car market with two kinds
of cars, type A which are completely reliable, and
type B which break down with probability 1/2.
There are 20 car owners, 10 with each kind of car,
and 20 potential buyers. The car owners and
buyers value a car at 1000 and 1500, respectively if
it works and both owners and buyers value a non-
working car at zero. Both buyers and owners are
assumed to be price takers and risk-neutral. Finally
each seller is aware of the type that her car
belongs to, but this information is not available to
buyers.
- What value do buyers and sellers place on type A
and type B cars?
How many cars, and of what type(s) are supplied
at each price?
-What is the demand for cars at each price?
How many equilibria are there in the market?
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