In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.
In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the original owners know which are which. Owners of lemons will be happy to get rid of their cars for any price greater than $200. Owners of peaches will be willing to sell them for any price greater than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of the car, given the knowledge they have. If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used car? Type the number without the thousands separator or $ sign.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In Hayward, there are 100 people who want to sell their used cars. Everybody knows that 50 of
these cars are "lemons" and 50 of these cars are "peaches." The problem is that nobody except the
original owners know which are which. Owners of lemons will be happy to get rid of their cars for
any price greater than $200. Owners of peaches will be willing to sell them for any price greater
than $1,500 but will keep them if they can't get $1,500. There are a large number of buyers who
would be willing to pay $2,500 for a peach but would pay only $300 for a lemon. When these
buyers are not sure of the quality of the car they buy, they are willing to pay the expected value of
the car, given the knowledge they have.
If all 100 used cars in Hayward were for sale, how much would buyers be willing to pay for a used
car? Type the number without the thousands separator or $ sign.
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