In the used-car market there are good cars and bad cars. Everyone knows that half of the used cars are good and halfof them are bad, but only the owner knows exactly whether his particular car is good or bad.If a car is good, it is worth $3000 to its owner but worth $4000 to a potential buyer. A bad car, on the other hand, isworth only $2000 to its owner and $1000 to a potential buyer. A potential buyer has no way of telling whether aparticular car is good or bad. However, she is aware of the fact that the seller knows the car's quality.(VI.1)If the price of a car is $2500, what type of car will be offered for sale?Only bad cars/All cars/Only good cars/No car.(choose the right answer)Should a potential buyer buy a car that is being offered for sale at $2500?Yes/No(choose the right answer)If the price of a car is $3500, what type of car will be offered for sale?Only bad cars/Only good cars/All cars/No car.(choose the right answer)What is the buyer's expected value of a car offered for sale at $3500?Answer: $Should a potential buyer buy a car that is being offered for sale at $3500?Yes/No(choose the right answer)At what price will any used car be traded? (circle the right answer or answers)A. Under $1000.B. At least $1000 but no more than $2000.C. More than $2000 but less than $3000.D. At least $3000 but no more than $4000.E. Over $4000.F. There is no trade at any price in this market.(VI.2) To be economically efficient, (choose the right answer)A. All owners should keep their cars.B. All cars should be allocated to the buyers.C. Bad cars should be allocated to the buyers and good cars should be kept by their owners.D. Good cars should be allocated to the buyers and bad cars should be kept by their owners.

"Since you have asked a question with multiple sub-parts, we will solve first three sub-parts for…

In the used-car market there are good cars and bad cars. Everyone knows that half of the used cars are good and half of them are bad, but only the owner knows exactly whether his particular car is good or bad. If a car is good, it is worth $3000 to its owner but worth $4000 to a potential buyer. A bad car, on the other hand, is worth only $2000 to its owner and $1000 to a potential buyer. A potential buyer has no way of telling whether a particular car is good or bad. However, she is aware of the fact that the seller knows the car's quality. (VI.1) If the price of a car is $2500, what type of car will be offered for sale? Only bad cars/ All cars/ Only good cars/ No car. (choose the right answer) Should a potential buyer buy a car that is being offered for sale at $2500? Yes/ No (choose the right answer) If the price of a car is $3500, what type of car will be offered for sale? Only bad cars/ All cars/ Only good cars/ No car. (choose the right answer)

In the used-car market there are good cars and bad cars. Everyone knows that half of the used cars are good and half of them are bad, but only the owner knows exactly whether his particular car is good or bad. If a car is good, it is worth $3000 to its owner but worth $4000 to a potential buyer. A bad car, on the other hand, is worth only $2000 to its owner and $1000 to a potential buyer. A potential buyer has no way of telling whether a particular car is good or bad. However, she is aware of the fact that the seller knows the car's quality. (VI.1) If the price of a car is $2500, what type of car will be offered for sale? Only bad cars/ All cars/ Only good cars/ No car. (choose the right answer) Should a potential buyer buy a car that is being offered for sale at $2500? Yes/ No (choose the right answer) If the price of a car is $3500, what type of car will be offered for sale? Only bad cars/ All cars/ Only good cars/ No car. (choose the right answer)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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