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 $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. OD. Itis not possible to solve the asymmetric information problem in this market.

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 $ 25500. (Enter your response rounded to the nearest dollar.) Which of the following would best "solve" the asymmetric information problem in this market? O A. Prohibiting the sale of low-quality cars. O B. High-quality sellers could offer warranties or product guarantees. OC. Low-quality sellers could establish industry standards. OD. Itis not possible to solve the asymmetric information problem in this market.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.3P

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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 $___
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