please answer a & b
In a used car market there are two types of cars: bad (B) and good (G). Assume that the utility from a bad car is Ub= Php100, and the utility from a good car is Ug = Php1000. Jaebeom, the owner of IGOT7 Used Cars Company, buys cars from the general public for his lot (assume he just keeps them on his lot for now). The owners of the cars who are selling to Jaebeom know the qualities of the cars they are selling, but Jaebeom does not.
a. If car type is observable, what is the price paid for good and bad-type cars?
b. Describe the equilibrium in the market assuming that Jaebeom can only offer the same buying price to
any car in the market (i.e. cannot discriminate among sellers). What is the equilibrium used car price?
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
