18.7Suppose 100 cars will be offered on the used-car market. Let 50 of them be good cars, each worth $10,000 to a buyer, and let 50 be lemons, each worth only $2,000.Compute a buyer’s maximum willingness to pay for a car if he or she cannot observe the car’s quality.Suppose that there are enough buyers relative to sellers that competition among them leads cars to be sold at their maximum willingness to pay. What would the mar- ket equilibrium be if sellers value good cars at $8,000? At $6,000?

Given: Number of cars offered=100 Number of good cars=50 Probability of good car=50/100*100=50 or…

Answered: s will be offered on the used-car…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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18.7

Suppose 100 cars will be offered on the used-car market. Let 50 of them be good cars, each worth $10,000 to a buyer, and let 50 be lemons, each worth only $2,000.

Compute a buyer’s maximum willingness to pay for a car if he or she cannot observe the car’s quality.
Suppose that there are enough buyers relative to sellers that competition among them leads cars to be sold at their maximum willingness to pay. What would the mar- ket equilibrium be if sellers value good cars at $8,000? At $6,000?

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