Question 20 Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have noway of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they arebeing offered may be a low-quality "lemon."Instructions: Enter your answers as a whole number.a. Suppose that there are equal numbers of good and bad used cars in the market. Good used cars are worth $13,000, and bad usedcars are worth $5,000. What is the average value of a used car?2$b. By how much does the average value exceed the value of a bad used car?24By how much does the value of a good used car exceed the average value?2$c. Would a potential seller of a good used car be willing to accept the average value as payment for the vehicle?|(Click to select) ▼d. If a buyer negotiates with a seller to purchase the seller's used car for a price equal to the average, is the car more likely to be goodor bad?(Click to select) ve. Will the used-car market come to feature mostly-if not exclusively-lemons?(Click to select)How much will each used car end up costing if all the good cars are withdrawn from the market? way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they arebeing offered may be a low-quality “lemon."Instructions: Enter your answers as a whole number.a. Suppose that there are equal numbers of good and bad used cars in the market. Good used cars are worth $13,000, and bad usedcars are worth $5,000. What is the average value of a used car?%24b. By how much does the average value exceed the value of a bad used car?%$4By how much does the value of a good used car exceed the average value?%24c. Would a potential seller of a good used car be willing to accept the average value as payment for the vehicle?(Click to select)d. If a buyer negotiates with a seller to purchase the seller's used car for a price equal to the average, is the car more likely to be goodor bad?(Click to select) ▼e. Will the used-car market come to feature mostly–if not exclusively–lemons?|(Click to select) -How much will each used car end up costing if all the good cars are withdrawn from the market?24

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Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as a whole number. a. Suppose that there are equal numbers of good and bad used cars in the market. Good used cars are worth $13,000, and bad used cars are worth $5,000. What is the average value of a used car? %24 b. By how much does the average value exceed the value of a bad used car? 24 By how much does the value of a good used car exceed the average value? 2$ c. Would a potential seller of a good used car be willing to accept the average value as payment for the vehicle? (Click to select) v

Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as a whole number. a. Suppose that there are equal numbers of good and bad used cars in the market. Good used cars are worth $13,000, and bad used cars are worth $5,000. What is the average value of a used car? %24 b. By how much does the average value exceed the value of a bad used car? 24 By how much does the value of a good used car exceed the average value? 2$ c. Would a potential seller of a good used car be willing to accept the average value as payment for the vehicle? (Click to select) v

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter8: Market Failure

Section: Chapter Questions

Problem 10P

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Suppose there are only two kind of cars in the market for used cars: lemons and good cars. A lemon is worth $1,000 both to its current owner and to anyone who buys it. A good car is worth $8,000 to its current and potential owners. Buyers can't tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the prevailing price of a used car? $8,000 $4,500 $1,000 The prevailing price depends on how many lemons and how many good cars are traded.
Alana wishes to obtain auto insurance. She wants 100/300/100 liability coverage, $250 deductible collision and full coverage comprehensive. She lives in territory 2 and has been assigned to driver class 2 with a rating factor of 1.25. Based on Table 19-6 and Table 19-7, what would be her total premium, if her three-year-old car were in model class L? (Round your answer to the nearest cent.) a. $355.00 b. $365.00 c. $456.25 d. $465.38
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What is the problem of moral hazard?
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Empirical evidence suggests that state laws mandating health insurance coverage for alcoholism treatment leads to moral hazard on the part of the insured population. Given this information, what are you most likely to observe in a state that has passed such a law? A. Less use of alcohol treatment facilities B. Lower rates of drunk driving C. Higher rates of alcoholism D. Lower sales of alcohol
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