In Akelof's lemons problem, with asymmetric information, suppose that 5 cars are available with quality levels...
In Akelof's lemons problem, with asymmetric information, suppose that 5 cars are available with quality levels 0, 1, 2, 3, and 4. If the sellers have a reservation price of $ 2,000 per unit of quality, and buyers value cars at $ 3,000 per unit of quality, find the equlibrium price. What would have happened at this market?
Homework Answers
In case of a market with asymmetric information, none of the cars can get sold although the price the buyers are willing to pay for a plum i.e.$3000 exceeds the reservation price at which the sellers are willing to sell i.e.$2000. Thus it is a case of market failure. And the cars are not sold.
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In Akelof's lemons problem, with asymmetric
information, suppose that 5 cars are available with quality levels...
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at...
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at $1,500 and good used cars at $2,200, the reservation price of lemon owners is $500, and the reservation price of owners of high-quality used cars is $2,000. The share of current owners who have lemons is 0. For what values of 0 do all the potential sellers sell their used cars? Describe the equilibrium. The most a risk-neutral buyer would be willing to pay...
can someone explain how to work out part b *edit*: better picture 1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemo...
can someone explain how to work out part b
*edit*: better picture
1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemons); the right panel (b) shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale, lemons would sell for $8,000 and plums would sell for $16,000. Price,() (S/car) (a) Lemons (b) Plums...
Consider the market for used cars. The overall population of used cars is a fraction p...
Consider the market for used cars. The overall population of used cars is a fraction p plums and a fraction 1 ? p lemons. Used car sellers value plums at $2,000 and lemons at $1,000. Used car buyers value plums at $2,400 and lemons at $1,200. There is asymmetric information. The seller of a car knows the type of the car and the potential buyer does not. Market equilibrium is defined as a Nash equilibrium. a) Suppose p = 0.5....
1. Suppose there are two kinds of used cars, good cars and lemons. A good car...
1. Suppose there are two kinds of used cars, good cars and lemons. A good car is worth $10,000, and a lemon is worth $2,000. Owners of used cars know where the car is good or bad, but potential buyers do not. (a) Supposing half of all cars are good and half are lemons, what is the expected value of a used car of unknown quality? (b) Based on your answer to part (a), do you expect owners of used...
Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition (...
Suppose the market for used cars has 75 sellers with cars in
good condition and 25 sellers with cars in bad condition
("lemons").
5. Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons"). There are an unlimited number of potential buyers. Buyers are willing to pay $10,000 for cars in good condition while the sellers value these cars at $7,000. Buyers are willing to pay $300...
Suppose there are 50 sellers of cars in a used car market who know the quality...
Suppose there are 50 sellers of cars in a used car market who know the quality of their car. Of these 50 sellers, 25 own plums. Each owner of a plum is willing to sell her car as long as she receives at least $4000 for it. The remaining sellers own lemons, which each would be willing to sell for at least $2000. There are also 50 potential buyers. a) Suppose that each buyer is willing to pay up to...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
What's the answer for both Qs There are many buyers who value high-quality used cars at...
What's the answer for both Qs
There are many buyers who value high-quality used cars at the full-information market price of p, and lemons at P2. There are a limited number of potential sellers who value high-quality cars at V1 spand lemons at V2 =p2. Everyone is risk neutral. The share of lemons among all the used cars that might potentially be sold is 0. Assume P4 > P2, V7 > V2. Further, suppose that the buyers incur a transaction...
Please help B. Asymmetric Information & Behavioral Economics 1. What is the equilibrium price and quantity in the u...
Please help
B. Asymmetric Information & Behavioral Economics 1. What is the equilibrium price and quantity in the used car market below? Why aren't the other 2 points labeled considered equilibrium points? Supply of high-quality cars (plums) Supply of low-quality cars (lemons) Price (S) WTP with 50/60 expectations $10,000 WTP with pessimistic expectations $4,000 40 70 30 Number of used cars sold per day
B. Asymmetric Information & Behavioral Economics 1. What is the equilibrium price and quantity in the...
The lemons problem gives the owners of above-average-quality used cars an incentive to: A. offer a...
The lemons problem gives the owners of above-average-quality used cars an incentive to: A. offer a warranty when selling their cars. B. ask for a sales price that is higher than the blue book value of their car. C. exaggerate the quality of their cars when selling them. D. understate the true quality of their cars when selling them
Suppose that everyone in a used-car example is risk neutral, potential car buyers value lemons at $1,500 and good used cars at $2,200, the reservation price of lemon owners is $500, and the reservation price of owners of high-quality used cars is $2,000. The share of current owners who have lemons is 0. For what values of 0 do all the potential sellers sell their used cars? Describe the equilibrium. The most a risk-neutral buyer would be willing to pay...
can someone explain how to work out part b
*edit*: better picture
1. Consider the market for used cars shown in the figure below. The left panel (a) shows the market for low-quality cars (lemons); the right panel (b) shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale, lemons would sell for $8,000 and plums would sell for $16,000. Price,() (S/car) (a) Lemons (b) Plums...
Suppose the market for used cars has 75 sellers with cars in
good condition and 25 sellers with cars in bad condition
("lemons").
5. Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons"). There are an unlimited number of potential buyers. Buyers are willing to pay $10,000 for cars in good condition while the sellers value these cars at $7,000. Buyers are willing to pay $300...
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality "lemon." Instructions: Enter your answers as whole numbers. a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad...
What's the answer for both Qs
There are many buyers who value high-quality used cars at the full-information market price of p, and lemons at P2. There are a limited number of potential sellers who value high-quality cars at V1 spand lemons at V2 =p2. Everyone is risk neutral. The share of lemons among all the used cars that might potentially be sold is 0. Assume P4 > P2, V7 > V2. Further, suppose that the buyers incur a transaction...
Please help
B. Asymmetric Information & Behavioral Economics 1. What is the equilibrium price and quantity in the used car market below? Why aren't the other 2 points labeled considered equilibrium points? Supply of high-quality cars (plums) Supply of low-quality cars (lemons) Price (S) WTP with 50/60 expectations $10,000 WTP with pessimistic expectations $4,000 40 70 30 Number of used cars sold per day
B. Asymmetric Information & Behavioral Economics 1. What is the equilibrium price and quantity in the...
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