A used cars salesman is selling a car to a competitive market of buyers, who value...
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A used cars salesman is selling a car to a competitive market of buyers, who value the car at v, while the seller values it at v 15. Only the seller knows v, while buyers believe v is equally likely to be L = 80, M = 100, or H = 120. a) Show that the good car, H, cannot be traded in equilibrium. b) Show that there are three equilibria, one in which only bad cars, L, are traded, and two in which both bad and medium cars, L and M are traded.² c) Which of the equilibria is the most efficient? A used cars salesman is selling a car to a competitive market of buyers, who value the car at v, while the seller values it at v 15. Only the seller knows v, while buyers believe v is equally likely to be L = 80, M = 100, or H = 120. a) Show that the good car, H, cannot be traded in equilibrium. b) Show that there are three equilibria, one in which only bad cars, L, are traded, and two in which both bad and medium cars, L and M are traded.² c) Which of the equilibria is the most efficient?
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Answer rating: 100% (QA)
a To show that the good car H cannot be traded in equilibrium we need to demonstrate that there is no price at which both the seller and the buyers are willing to trade the good car Since the seller v... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
Posted Date:
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