There are two types of used cars. Sellers know the quality of their cars, but buyers do not. Sellers of high-quality cars are willing to sell them for 2760, while sellers of low quality cars will sell for 1560. A high-quality car is worth 3000 to a buyer, while a low-quality car is worth 1800. Buyers are risk neutral. For there to exist an equilibrium in which all cars sell at a single price that reflects the average quality, the proportion of cars that are of high quality has to be at least:
There are two types of used cars. Sellers know the quality of their cars, but buyers do not. Sellers of high-quality cars are willing to sell them for 2760, while sellers of low quality cars will sell for 1560. A high-quality car is worth 3000 to a buyer, while a low-quality car is worth 1800. Buyers are risk neutral. For there to exist an equilibrium in which all cars sell at a single price that reflects the average quality, the proportion of cars that are of high quality has to be at least:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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