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?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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