Decisions Involving Private Information $-$ End of Chapter Problem

Consider the market for used homes. In many cases, the seller of a home may be aware of defects or maintenanee concerns that

may not be readily noticeable to potential buyers.

a$.$ In this scenario, potential buyers base their offers on their perceptions of the proportion of homes on the market that have

been properly maintained. Potential buyers may see a large proportion of homes that require maintenance. In this case

buyers will likely offer

than they would if they were certain that homes have

been properly maintained. At the same time, sellers of well$-$maintained homes may

because buyers will not be willing to offer what sellers feel the homes are worth.

b$.$ This situation is known as