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 -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?
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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
-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?
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- 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 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?A buyer wants to purchase a house from a seller. Let v be the quality of this house. The quality v is known to the seller but unobservable to the buyer. The buyer thinks the chance that v=$1k is 20%, v=$10k is 40%, and v=$50k is 40%. The seller’s valuation of the house is v and the buyer’s valuation of the house is 2v a) Suppose both the buyer and the seller see the value of v . Also suppose the transaction price equals the value of v (i.e. if =10k, then the buyer pays 10k for the house). Calculate the buyer’s expected profit before seeing the value of b) Suppose only the seller sees v. Also suppose the buyer is allowed to make any offer to the seller and the seller accepts it if the offered price is above or equals to v. What is the buyer’s profit maximizing offer? What is the buyer’s maximum profit? c) Base on your answers from (a) and (b), what is the value of information (i.e. the benefits of seeing the value of ) to the buyer?Government provided social insurance is most beneficial in the cases where the probability of adverse events is _____ to calculate and the costs of the adverse events are _____. a.hard/low b.easy/high c.easy/low d.hard/high
- Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are selling, but buyers do not. Buyers know that there is a 30% chance of getting a "lemon", a low quality used car. A high quality used car is worth $30,000, and a low quality used car is worth $15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $___A thousand used cars are for sale in Boston. Some of the cars are of good quality (“plums”), and some are not (“lemons”), but the buyer cannot tell the difference between the two qualities; of course the seller knows whether the car is a lemon or a plum. Suppose that consumers are willing to pay $4,000 for a lemon and $6,400 for a plum; and sellers are willing to sell a lemon for $3,500 and a plum for $5,600. a. If there is a 40% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case. b. If there is a 10% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case? Kindly answer in detail with all steps and answer should b typed not hand written.A thousand used cars are for sale in Boston. Some of the cars are of good quality (“plums”), and some are not (“lemons”), but the buyer cannot tell the difference between the two qualities; of course the seller knows whether the car is a lemon or a plum. Suppose that consumers are willing to pay $4,000 for a lemon and $6,400 for a plum; and sellers are willing to sell a lemon for $3,500 and a plum for $5,600. a. If there is a 40% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case. b. If there is a 10% chance that a car is a lemon, how many cars will be sold? And what is the maximum consumer surplus in this case? Kindly answer in detail with all steps
- Burger Prince Restaurant is considering the purchase of a $100,000 fire insurance policy. The fire statistics indicate that in a given year the probability of property damage in a fire is as follows: Fire Damage $100,000 $75,000 $50,000 $25,000 $10,000 $0 Probability .006 .002 .004 .003 .005 .980 If Burger Prince was risk neutral, how much would they be willing to pay for fire insurance? If Burger Prince has the utility values given below, approximately how much would they be willing to pay for fire insurance? Loss $100,000 $75,000 $50,000 $25,000 $10,000 $5,000 $0 Utility 0 30 60 85 95 99 100Portsmouth Bank has foreclosed on a home mortgage and is selling the house at auction. There are three bidders for the house, Emily, Anna, and Olga. Portsmouth Bank does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $600,000, a probability of 1/3 of valuing at $500,000, and a probability of 1/3 of valuing it at $200,000. Portsmouth Bank believes that these probabilities are independent among buyers. If Portsmouth Bank sells the house by means of a second- bidder, sealed- bid auction (Vicktey auction), what will be the bank's expected revenue from the sale?Consider a city where everyone commutes to the city center, and the commuting cost per mile per month is $50. Each household occupies a 1,500-square-foot dwelling and has $10,000 worth of possessions in its dwelling. The probability that any particular household will be burglarized and lose all its possessions (no insurance) is 0.2 (per month) at the city center and decreases by 0.01 per mile (to 0.19 at one mile, 0.18 at two miles, and so on). The price of housing is $2 per square foot at the city center. 1. Starting from the center, a one-mile move outward changes the expected value of the loss from crime from_______ to _______, a change of _________ per square foot. 2. The slope of the housing-price curve is _________, computed as __________ 3. Draw the housing-price curve for locations up to five miles from the city center. The price changes from ________ at the city center to _________ five miles away.
- A Bank has foreclosed on a home mortgage and is selling the house at auction. There are two bidders for the house, Zeke and Heidi. The bank does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $800,000, a probability of 1/3 of valuing at $600,000, and a probability of 1/3 of valuing it at $300,000. The bank believes that these probabilities are independent among buyers. If the bank sells the house by means of a second- bidder, sealed-bid auction, what will be the bank’s expected revenue from the sale? The answer is 455, 556. Please show the steps in details thank you!could you answer part b to this question or if you have time part a and part b but part is more important. thank you Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000. a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain. b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?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. If the seller sells the buyer a poor quality car, what is the net-benefit to the seller? a. A net gain of $6,000. b. A net loss of $20,000. c. A net loss of $6,000. d. A net gain of $10,000.