Question: Suppose that everyone in the used car example in the text is risk neutral, potential car buyers value lemons at $ 4,000 and good used
Suppose that everyone in the used car example in the text is risk neutral, potential car buyers value lemons at $ 4,000 and good used cars at $ 8,000, the reservation price of lemon owners is $ 3,000, and the reservation price of owners of high-quality used cars is $ 7,000. The share of current owners who have lemons is θ in the example in the text, θ = 1/2 = 1000 / (1000 + 1000)]. For what values of θ do all the potential sellers sell their used cars? Describe the equilibrium.
Step by Step Solution
3.47 Rating (173 Votes )
There are 3 Steps involved in it
All sellers will sell their used cars if the probability a used ca... View full answer
Get step-by-step solutions from verified subject matter experts
Document Format (1 attachment)
349-B-E-M-E (3337).docx
120 KBs Word File
