Asymmetric information in the market for used cars

Assignment Help Business Economics
Reference no: EM131597945

Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are? selling, but buyers do not.

Buyers know that there is a 50?% chance of getting a? "lemon", a low quality used car. A high quality used car is worth? $30,000, and a low quality used car is worth? $15,000.

Based on this? probability, the most that a buyer would be willing to pay for a used car is ?$

Reference no: EM131597945

Questions Cloud

Which one do you think is the most effective for a company : Which one do you think is the most effective for a company to implement? Explain why you think would it result in the best possible outcomes.
What is the expected return on a portfolio : What is the expected return on a portfolio that is equally invested in the two assets? what are the portfolio weights?
Discuss development in health care management : Explain your proposed approach for conducting research necessary to develop quality deliverables, and explain how the information gleaned will support.
How much would the price of bond change : How much would the price of bond change if investors required return changes to 8% per year?
Asymmetric information in the market for used cars : Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the car that they are? selling, but buyers do not.
What is investment profitability index : Your firm is considering an investment that will cost $950,000 today. What is the investment's profitability index?
What external trends are likely to impact the business : What external and internal trends are likely to impact this business? Write a detailed explanation of event or ethical issue that this company has encountered.
Identify a personal economic decision : Identify a personal economic decision that was driven by a behavioral bias rather than by pure rational behavior.
Conducts customer segment research : Calculate the NPV for the firm if it conducts customer segment research, and if it goes to market immediately.

Reviews

Write a Review

Business Economics Questions & Answers

  Reduce costs by eliminating appointments

A clinic finds that it can reduce costs by eliminating appointments. The clinic is able to eliminate some telephone staff, and physicians become more productive. Patients wait until the physician is available, so the physician has virtually no downti..

  Deadweight loss resulting from the price ceiling

Illustrate with a diagram the market for apartments after the price ceiling is imposed and show on your diagram the excess demand in the market, the consumer surplus, the producer surplus, and the deadweight loss resulting from the price ceiling.

  Transfer pricing is one of the methods

Transfer pricing is one of the methods that MNCs use to move money around the world. This practice is still legal, but has been creating major problem in the world. Explain the problem and discuss how you would go about solving this problem.

  The demand for labor will be less elastic the

Which of the following statements is true? Other things equal, the demand for labor will be less elastic the:

  Nuclear safety devices installed several years

Nuclear safety devices installed several years ago have been depreciated from a ?rst cost of $200,000 to zero using MACRS. The devices can be sold on the used equipment market for an estimated $15,000. Use a 5-year study period, an effective tax rate..

  Processing arrays of objects

Stocks4U needs to develop an app for you to manage your stock purchases. You should be able to store a list of stock purchases, view the individual stocks

  Predatory pricing-what is so bad about price fixing

Apex Manufacturing charges Zenith Manufacturing with predatory pricing (that is, selling below cost) What do you think anti-trust authorities will want to consider before they determine whether prosecute Zenith for unfair practices in restraint of tr..

  How is momentum justified as common risk factor

What are the economic justifications of the size premium? In factor pricing models like the intertemportal capital asset pricing model (I-CAPM) or arbitrage pricing theory (APT), it is assumed that exposure to one of these factors represent exposure ..

  Reserves-required reserves and excess reserves

Suppose that Second Republic Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.

  Goods market and the money market equilibrium

Assuming that the price level is P = 1, find the equilibrium real output, interest rate, consumption, and investment. Organize your results in the following table. (Hint: You should solve both the goods market and the money market equilibrium.)

  Risk of hedging with currency futures

How could ABC use currency futures to hedge its position and what is the risk of hedging with currency futures.

  Find the nash equilibria for the game

A slave has just been thrown to the lions in the Roman Colosseum. Three lions are chained down in a line, with Lion 1 closest to the slave. Each lion's chain is short enough that he can only reach the two players immediately adjacent to him. write ou..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd