Econ398_HW6 - obtains a lemon the value of the car to him...

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Econ 398 Homework 6 Due Friday, March 13, 2009 1) Dixit & Skeath, Chapter 8, problem 4 2) Dixit & Skeath, Chapter 8, problem 6 3) Recall the game discussed in lecture called Glorified Chicken: Daisy Duke Billy– Jo Bob Left Straight Right Stop Left 1 , 1 1 , 2 0 , 0 2 , .75 Straight 2 , 1 0 , 0 2 , 1 2 , .75 Right 0 , 0 1 , 2 1 , 1 2 , .75 Find all the Nash Equilibria of Glorified Chicken. 4) Recall the Expert Advice game from lecture. Draw out the best response curves and find all the Nash Equilibria when E < (r)E1 + (1-r)I1. 5) Consider a used car market with 100 sellers and 200 buyers, and two types of cars: lemons and peaches. Suppose that the seller of a peach values his car at $10,000 and seller of a lemon values his car at $6,000. If a buyer obtains a peach, the value of the car to him is $14,000 and if he
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Unformatted text preview: obtains a lemon the value of the car to him is $8,000. a. Suppose neither the seller nor the buyer knows the type of the car, but they know that half of the cars are lemons and half are peaches. Assume that the seller makes a take-it-or-leave-it offer to the buyer. What offer would the seller make? Which cars would be traded on the market? b. Now, suppose that each seller knows the true quality of their car, but buyers do not. Suppose also that p is the percentage of sellers who own a peach and that sellers each make a take-it-or-leave-it-offer. What is the lowest value of p so that there is an equilibrium where both peaches and lemons are traded on the market?...
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