Buyers of a used product value good ones at $150 and bad ones at $95, while sellers value good ones at $115 and bad ones at $81. Under perfect information, if the price of bad ones is $91, then buyer surplus for bad products is _____, and if the price of good ones is $121, then sellers of good ones get surplus _____. Group of answer choices 8; 11 8; 6 4; 6 4; 11

Buyers of a used product value good ones at $150 and bad ones at $95, while sellers value good ones at $115 and bad ones at $81. Under perfect information, if the price of bad ones is $91, then buyer surplus for bad products is _, and if the price of good ones is $121, then sellers of good ones get surplus _. Group of answer choices 8; 11 8; 6 4; 6 4; 11

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter18: Auctions

Section: Chapter Questions

Problem 18.2IP

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Consider the used car market with imperfect information. There are 10 bad quality cars (lemons) and 12 good quality cars. The value of a bad car is $8,000 and the value of a good car is $20,000. What is the equilibrium price? Group of answer choices $13,300 $21,818.18 $13,454.54 $14,000
Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer believes the probability a given used car is good quality is .60 and the probability a given used car is low quality is .40. Assume the seller has perfect information on all cars in inventory. How does the informational imbalance result in market failure? a. Only good quality cars are sold, hence the market under-provides used cars. b. Both poor and good quality cars are sold, hence the market over-provides used cars. c. Only poor quality cars are sold, hence the market under-provides used cars. d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.
Buyers of used mopeds value good ones at $8,200 and value bad ones at $6,000. Sellers value good ones at $7,050 and value bad ones at $5,550. Assume buyers cannot observe type prior to purchase, but believe fraction x are good ones. What is the minimum fraction x needed in order to prevent market failure, where some mopeds don't trade? Group of answer choices 0.51 0.48 0.44 0.4
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