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mostly-if not exclusively-lemons?(Click to select)How much will each used car end up costing if all the good cars are withdrawn from the market?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not exclusively–lemons?|(Click to select) -How much will each used car end up costing if all the good cars are withdrawn from the market?24

Hi! Thank you for the question, As per the honor code, we are allowed to answer three sub-parts at a…

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

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 1SCQ: For each of the following purchases, say whether you would expect the dogma of imperfect information...

See similar textbooks

Related questions

Q: If the Anaheim Ducks acquire a star player or two, the demand for their tickets will rise. This will…

A: Demand(DD) refers to the quantity(Q) of a service or commodity that consumers are ready and capable…

Q: 1. Match the following expressions with their meanings: a) become aware of something b) think…

A: a) become aware of- notice the importance of something b) think outside the box-explore ideas which…

Q: 68 The demand equation for a product is q = + In (126 - p). (a) Determine the point elasticity of…

Q: Price Quantity (Dollars per lamp) (Lamps) Produce or Shut Down? Profit or Loss? 15 Shut down Loss 20…

A: please find the answer below.

Q: QUESTION 20 YEAR PRODUCT 1988 1989 1990 1991 price: $2.00 quantity: price: $1.00 1,000 $6.00 $8.00…

A: Consumer Price Index or CPI measures the total cost of goods and services that are being purchased…

Q: The South Korean Government in the 1970s decided to follow a strategy of increased investment in…

A: Scarcity refers to the limited availability of resources, that are used to produce goods and…

Q: Suppose that the demand per ounce of a rare type of chocolate, Qp, is represented by the following…

A: Demand-supply equilibrium: Demand refers to the total demanded quantity for commodities and services…

Q: $20,000 $17,000 (total) Anne $22,000 (total) Brad $30,000 $24,000 (total) Claire $40,000 (total)…

A: Marginal propensity to consume (MPC) is measures as the ratio of change in consumption to a change…

Q: Suppose the demand curve shifts to the right and the supply curve shifts to the Right by more than…

A: New demand curve: Downward sloping New supply curve: Upward sloping

Q: The effects of climate related risks on insurance companies. - Identify the climate related risks…

A: The objective of this question is to identify the climate-related risks that may affect insurance…

Q: Question 2 When the announcement was made in January about the availability of Starlink in Nigeria,…

A: When the announcement was made in January about the availability of Starlink in Nigeria, it could…

Q: During an extremely hot summer, we observed more air conditioners sold than in the past, despite a…

A: Demand curve is a graphical representation of relationship between price and quantity demanded of a…

Q: Given that the quantity demanded of a commodity is 100 when its price is 20 and the quantity…

A: Elasticity of demand, often referred to as price elasticity of demand (PED), is a measure of the…

Q: Suppose that the price elasticity for hip replacement surgeries is 0.4. Further suppose that hip…

A: Price of surgery=$50000Demand for Surgery=10000Price elasticity of demand=0.4Price elasticity of…

Q: According to the midpoint method, the price elasticity of demand for apples between point X and…

A: Price elasticity of demand refers to the responsiveness in quantity demanded to the change in price…

Q: A product's price falls from £2.40 to £2. What percentage change does this represent? a) -40% b)…

A: The objective of this question is to calculate the percentage change in the price of a product that…

Q: The supply equation for a given product is y = 10x + 50, while the demand equation for the same…

Q: 1) https://www.youtube.com/watch?v=u5P8AZRBLac 2) https://www.youtube.com/watch?v=9MpVjxxpExM…

A: There are many countries which are rich , many country that are slowly becoming rich and some…

Question

Question 20

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 $5,000. What is the average value of a used car?
2$
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) ▼
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 good
or bad?
(Click to select) v
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?

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?
%$4
By how much does the value of a good used car exceed the average value?
%24
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 good
or 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

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Trending now

This is a popular solution!

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions

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.” a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad used cars are worth $5,000. What is the average value of a used car? b. By how much does the average value exceed the value of a bad used car? By how much does the value of a good used car exceed the average value? c. Would a potential seller of a good used car be willing to accept the average value as payment for her vehicle? d. If a buyer negotiates with a seller to purchase the seller’s used car for a price equal to the average value, is the car more likely to be good or bad? e. Will the used-car market come to feature mostly—if not exclusively—lemons? How…
In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.
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
For each of the following purchases, say whether you would expect the dogma of imperfect information to be relatively high or relatively low: Buying apples at a roadside stand Buying dinner at the neighborhood restaurant around the comer Buying a used laptop computer at a garage sale Ordering flowers over the internet for your friend in a different city
What is the problem of moral hazard?
Typed plz and asap thanks
1)Describe an example of moral hazard that we may run into in the real world. Think of something that is legal and not inherently lethal, yet still demonstrates elevated risk for the participant who would likely act safer if insurance or protection was not available. Explain why someone might take this risky action. What are the benefits to the risky behavior? In your response to two of your peers, explain what an insurance company may do to reduce the likelihood that an individual would take this risk. Keep in mind, that we cannot always just deny coverage if an individual is participating in the risky behavior.
Please see the image below and help answer the questions.
George Akerloff focused the market for used cars and discussed an issue later generally called the "lemons problem." A "lemon" is a low quality used car, with the seller but not the potential buyer aware of this. Since sellers have more information about the quality of the car: a. adverse selection causes an inefficiently large number of transactions to occur. b. moral hazard causes an inefficiently large number of transactions to occur. c. moral hazard causes an inefficiently small number of transactions to occur. d. adverse selection causes an inefficiently small number of transactions to occur.
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
How does the presence of asymmetric information in the used car market impact the behavior of buyers, sellers, and market outcomes?