In the market for used cars, there are two types of cars: bad cars, or good cars. The sellers know the qualities of the cars, and they value bad cars at $100 and good cars at $1000. The buyers cannot observe the quality of the cars, and they are willing to pay $100 for a bad car, and $1000 for a good car. Assume that buyers can only offer the same buying price for any car in the market (i.e., buyers cannot discriminate among sellers). What is the equilibrium price in such a market for used cars? a) $550 b) $100 c) $1000 d) Between $100 and $1000 e) This is a case of adverse selection. The equilibrium price cannot be determined.

In the market for used cars, there are two types of cars: bad cars, or good cars. The sellers know the qualities of the cars, and they value bad cars at $100 and good cars at $1000. The buyers cannot observe the quality of the cars, and they are willing to pay $100 for a bad car, and $1000 for a good car. Assume that buyers can only offer the same buying price for any car in the market (i.e., buyers cannot discriminate among sellers). What is the equilibrium price in such a market for used cars? a) $550 b) $100 c) $1000 d) Between $100 and $1000 e) This is a case of adverse selection. The equilibrium price cannot be determined.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter8: Game Theory

Section: Chapter Questions

Problem 8.12P

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