Question 1 lemons. The sellers and buyers have the following valuations for the cars. There are 100 used cars whose owners might want to sell them: 80 are plums and 20 are Lemons Plums Seller's value 12,000 15,000 22,000 25,000 Buyer's value The sellers know whether their car is a plum or a lemon, but the buyers do not. The buyers are assumed to know (a) the fraction of lemons in the population of cars and (b) whether the plums are being offered for sale at the prevailing price. (i) Explain why the owners of plums may decide not to sell their cars.? (ii) Suppose that both lemons and plums are offered for sale by their owners. Is there a market clearing price at which this would be an equilibrium strategy?

Question 1 lemons. The sellers and buyers have the following valuations for the cars. There are 100 used cars whose owners might want to sell them: 80 are plums and 20 are Lemons Plums Seller's value 12,000 15,000 22,000 25,000 Buyer's value The sellers know whether their car is a plum or a lemon, but the buyers do not. The buyers are assumed to know (a) the fraction of lemons in the population of cars and (b) whether the plums are being offered for sale at the prevailing price. (i) Explain why the owners of plums may decide not to sell their cars.? (ii) Suppose that both lemons and plums are offered for sale by their owners. Is there a market clearing price at which this would be an equilibrium strategy?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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