In Hayward, there are 100 people who want to sell their used cars. The problem is that nobodyexcept the original owners know which are which. Owners of lemons will be happy to get rid oftheir cars for any price greater than $200. Owners of peaches will be willing to sell them for anyprice greater than $1,500 but will keep them if they can't get $1,500. There are a large number ofbuyers 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 theexpected value of the car, given the knowledge they have.What is the minimum probability for a used car to be a peach such that peaches stay in the market?ŐO0.330.670.550.5

The objective of the question is to find the minimum probability for a used car to be a peach such…

Answered: In Hayward, there are 100 people who…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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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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