In an isolated town, there are two distinct markets for cars. Buyers will pay up to $12,000 for a high-quality car or $8,000 for a low-quality car. There are 100 high-quality cars for sale, and the sellers have a minimum acceptable price of $11,000. There are also 100 low-quality cars for sale at a minimum acceptable price of $5,000. The supply of automobiles is perfectly inelastic above the reservation price ($11,000 for high quality cars and $5,000 for low-quality cars). Suppose that the quality of a car is known to the seller but not to the buyer. If sellers of high-quality cars have a reservation price of $9,500 instead of $11,000, what would we expect to happen in the market? a. The equilibrium price will be $10,000, but no high-quality cars will be offered for sale, so the proportion of high-quality cars will be zero. b. The equilibrium price will be $10,000, 100 of each type of car will be offered for sale, and the proportion of high-quality cars will be A. c. The equilibrium price will be between $8,000 and $12,000, 100 of each type of car will be offered for sale, and the proportion of high-quality cars will be . d. The equilibrium price will be $8,000, and no high-quality cars will be offered for sale, so the proportion of high-quality cars will be zero.
nk B is correct. I am wondering the proportion of high - quality cars given A . explain please!
In an isolated town, there are two distinct markets for cars. Buyers will pay up to $12,000 for a high-quality car or $8,000 for a low-quality car. There are 100 high-quality cars for sale, and the sellers have a minimum acceptable price of $11,000. There are also 100 low-quality cars for sale at a minimum acceptable price of $5,000. The supply of automobiles is perfectly inelastic above the reservation price ($11,000 for high quality cars and $5,000 for low-quality cars).
Suppose that the quality of a car is known to the seller but not to the buyer. If sellers of high-quality cars have a reservation price of $9,500 instead of $11,000, what would we expect to happen in the market?
a. The
b. The equilibrium price will be $10,000, 100 of each type of car will be offered for sale, and the proportion of high-quality cars will be A.
c. The equilibrium price will be between $8,000 and $12,000, 100 of each type of car will be offered for sale, and the proportion of high-quality cars will be .
d. The equilibrium price will be $8,000, and no high-quality cars will be offered for sale, so the proportion of high-quality cars will be zero.
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