Consider the used car market for a 2011 Citrus. Buyers are willing to pay $20,000 for an orange and $10,000 for a lemon. Sellers value their oranges at $16,000 and their lemons at $8,000. (Chapter 9) Buyer. Seller Orange (p) $20,000 $16,000 Lemon (1-p) $10,000 $8,000 Suppose 75% of the cars are oranges (and 25% are lemons, p = .75) What price are buyers willing to pay for an orange? Is there a market for oranges? (Will sellers sell for what buyers are willing to pay?) Suppose 40% of the cars are oranges (and 60% are lemons , p = .4). What price are buyers willing to pay for an orange. Is there a market for oranges? (Will seller sell for what buyers are willing to pay)
Consider the used car market for a 2011 Citrus. Buyers are willing to pay $20,000 for an orange and $10,000 for a lemon. Sellers value their oranges at $16,000 and their lemons at $8,000. (Chapter 9)
Buyer. Seller
Orange (p) $20,000 $16,000
Lemon (1-p) $10,000 $8,000
Suppose 75% of the cars are oranges (and 25% are lemons, p = .75) What price are buyers willing to pay for an orange? Is there a market for oranges? (Will sellers sell for what buyers are willing to pay?)
Suppose 40% of the cars are oranges (and 60% are lemons , p = .4). What price are buyers willing to pay for an orange. Is there a market for oranges? (Will seller sell for what buyers are willing to pay)
What is the minimum value of p such that the market for oranges does not
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