Question 41 ptsConsider the market for used cars. Suppose that there are "good" used cars and "lemons" (or carsthat are likely to fall apart quickly).Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of"lemons" will sell their car for $2,00O. Furthermore, assume buyers are willing to pay $12,000 for a"good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, butbuyers cannot differentiate between good cars and lemons.This situation is an example ofbulk markups that occur with adverse selectionan adverse selection death spiralex-post moral hazardex-ante moral hazard

Consider the market for used cars. Suppose that there are "good" used cars and "lemons" (or cars that are likely to fall apart quickly). Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of "lemons" will sell their car for $2,000. Furthermore, assume buyers are willing to pay $12,000 fo "good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, but buyers cannot differentiate between good cars and lemons. This situation is an example of O bulk markups that occur with adverse selection O an adverse selection death spiral O ex-post moral hazard O ex-ante moral hazard

Consider the market for used cars. Suppose that there are "good" used cars and "lemons" (or cars that are likely to fall apart quickly). Suppose that owners of "good" used cars would be willing to sell for $10,000 and owners of "lemons" will sell their car for $2,000. Furthermore, assume buyers are willing to pay $12,000 fo "good" car and $3,000 for a lemon. Assume that sellers know if their car is good or a lemon, but buyers cannot differentiate between good cars and lemons. This situation is an example of O bulk markups that occur with adverse selection O an adverse selection death spiral O ex-post moral hazard O ex-ante moral hazard

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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