Economics In the market of used cars, the quality is variable. Assume that the quality of a given car can be between $500 and $6,000, with uniform probability. The distribution of quality is known to everybody and owners know the quality of the car they are selling, but not the buyer. All the agents are risk neutral. (a) If a buyer thinks that all cars are in the market, what is the maximum price he is willing to pay? Price of the cars remaining in the market (hint: this new price is the average of the original prices) (b) At the previous price, what is the quality of the cars in the market? (c) Find E[Xn+1]= (b+a)/2 and E[A(UB]= (3/2)* E[Xn+1]- P. d) Draw the graph

Economics In the market of used cars, the quality is variable. Assume that the quality of a given car can be between $500 and $6,000, with uniform probability. The distribution of quality is known to everybody and owners know the quality of the car they are selling, but not the buyer. All the agents are risk neutral. (a) If a buyer thinks that all cars are in the market, what is the maximum price he is willing to pay? Price of the cars remaining in the market (hint: this new price is the average of the original prices) (b) At the previous price, what is the quality of the cars in the market? (c) Find E[Xn+1]= (b+a)/2 and E[A(UB]= (3/2)* E[Xn+1]- P. d) Draw the graph

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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