Reference no: EM133599421

Question: Consider a used car market with two distinct qualities of cars, both initially having an equal likelihood of being sold. Consumers value good-quality cars at $3,000 and poor-quality ones at $1,000. However, due to uncertainty about the car's quality prior to purchase, the maximum price they're willing to pay, given the perceived "gamble", is $2,000. While sellers are fully aware of their car's quality, buyers can only determine this post-purchase. A. Analyze the market dynamics when sellers of good-quality cars have a valuation of $1,500 for their vehicles, and sellers of poor-quality cars value theirs at $500. What's the likely market outcome in terms of cars sold and their prices? How would the market change if the valuation by sellers of good-quality cars rises to $2,500, while the valuation for poor-quality cars remains at $500? C. Given the valuations in part (b), what's the maximum amount sellers of good-quality cars would be prepared to spend to accurately convey the high quality of their cars to potential buyers?