Suppose it is a well-known fact that among ten-year old Ford F-150s, half the trucks are good and half of them are lemons. Suppose that it is also known to all parties that a good truck is worth $8,000 to current owners and $10,000 to potential buyers. A bad truck, on the other hand, is only worth $1,000 to current owners and $2,000 to potential buyers. Throughout, assume that buyers are risk-neutral. 4) Suppose that after much haggling, the current owner is willing to let her truck go for $6,000. What is the most likely implication? a) The truck is a lemon. b) The buyer is an excellent negotiator. c) It's a mutually beneficial transaction
Suppose it is a well-known fact that among ten-year old Ford F-150s, half the trucks are good and half of them are lemons. Suppose that it is also known to all parties that a good truck is worth $8,000 to current owners and $10,000 to potential buyers. A bad truck, on the other hand, is only worth $1,000 to current owners and $2,000 to potential buyers. Throughout, assume that buyers are risk-neutral. 4) Suppose that after much haggling, the current owner is willing to let her truck go for $6,000. What is the most likely implication? a) The truck is a lemon. b) The buyer is an excellent negotiator. c) It's a mutually beneficial transaction
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose it is a well-known fact that among ten-year old Ford F-150s, half the trucks are good and half of them are lemons. Suppose that it is also known to all parties that a good truck is worth $8,000 to current owners and $10,000 to potential buyers. A bad truck, on the other hand, is only worth $1,000 to current owners and $2,000 to potential buyers.
Throughout, assume that buyers are risk-neutral.
4) Suppose that after much haggling, the current owner is willing to let her truck go for $6,000. What is the most likely implication?
a) The truck is a lemon.
b) The buyer is an excellent negotiator.
c) It's a mutually beneficial transaction.
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