2.0p 3 Asymmetric information (2022) There are two distinct markets for cars in Autolandia. Buyers will...

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2.0p 3 Asymmetric information (2022) There are two distinct markets for cars in Autolandia. Buyers will pay up to $13,000 for a high-quality car or $9,000 for a low-quality car. There are 100 high-quality cars for sale, and the sellers have a minimum acceptable price of $12,000. There are also 100 low-quality cars for sale at a minimum acceptable price of $6,000. The supply of automobiles is perfectly inelastic above the reservation price. a If there is perfect information, how many cars will in total (high and low-quality cars combined) be sold in Autolandia? Explain! 2.0p b What is total surplus (the sum of consumer and producer/seller surplus) if there is perfect information? Explain! 4 2.0p c Suppose from now on that the quality of a car is known to the seller, but not to the buyer. How much are buyers willing to pay for a car if they estimate the chance of acquiring a low-quality car at 50%? Derive your answer! C G 2.0p 3 Asymmetric information (2022) There are two distinct markets for cars in Autolandia. Buyers will pay up to $13,000 for a high-quality car or $9,000 for a low-quality car. There are 100 high-quality cars for sale, and the sellers have a minimum acceptable price of $12,000. There are also 100 low-quality cars for sale at a minimum acceptable price of $6,000. The supply of automobiles is perfectly inelastic above the reservation price. a If there is perfect information, how many cars will in total (high and low-quality cars combined) be sold in Autolandia? Explain! 2.0p b What is total surplus (the sum of consumer and producer/seller surplus) if there is perfect information? Explain! 4 2.0p c Suppose from now on that the quality of a car is known to the seller, but not to the buyer. How much are buyers willing to pay for a car if they estimate the chance of acquiring a low-quality car at 50%? Derive your answer! C G

Answer rating: 100% (QA)

ANSWER a If there is perfect information 200 cars will be sold in Autolandia This is because buyers ... View the full answer