Imagine a market for used computers. There are two types of computers: good and bad. Also imagine that there are 50% of each on the market. Buyers can imagine paying 5,000 for a good computer and 1,000 for a bad computer Sellers want at least 4000 for a good computer and 1500 for a bad computer a-What would happen in the market if both sellers and buyers can observe the quality? What type (s) would be sold and what would the price be?
Imagine a market for used computers. There are two types of computers: good and bad. Also imagine that there are 50% of each on the market.
Buyers can imagine paying 5,000 for a good computer and 1,000 for a bad computer
Sellers want at least 4000 for a good computer and 1500 for a bad computer
a-What would happen in the market if both sellers and buyers can observe the quality? What type (s) would be sold and what would the
b-Assume that the buyer thinks that there is a 50% probability that the computer is of poor quality. What is the expected value and price of a computer that the buyer most wants to pay?
c-What would happen in the market if the buyer thinks that there is a 50% probability that the computers are of poor quality? What type (s) would be sold and what would the price be?
d-What would happen over time in the market when buyers can observe the quality of computers through transactions?
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