In the used-car market in Sydney there are two types of cars: bad cars and good...

 

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In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought). Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase. What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars? In the used-car market in Sydney there are two types of cars: bad cars and good cars. Owners of the cars know what sort of car they have, but to potential buyer all cars look alike (until after they have already been bought). Owners of bad cars are willing to sell their cars for $1000. Owners of good cars are willing to sell their cars for $1600. Buyers have a maximum willingness to pay for a bad car of $1400 and a maximum willingness to pay for a good car of $2400. Buyers are risk neutral, so they maximise their expected return when considering their purchase. What is the minimum proportion (q*) of good cars in the market such that the owners of the good cars are still willing to sell their cars?

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