Derive the average a buyer is willing to pay for a used car

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Reference no: EM131392264

There is a used car market with equal number of good and bad cars. There are two buyers and two sellers. The buyers are willing to pay $12,000 for a good car and $8000 for a bad car. A seller with a good car is willing to sell their car for $11,000. The seller with a bad car is willing to sell their car for $7000. However, the buyers do not know which seller has the good car.

a. Derive the average a buyer is willing to pay for a used car if both sellers sell.

b. Show whether the seller with a good car is willing to sell this car at the price in a.

c. What happens in the market?

d. Show whether the outcome in b. is Pareto Efficient (Allocation).

Reference no: EM131392264

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