Ch18 - Buying a used car Today's price for a new 2005...

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05/07/09 Econ 2005 1 Buying a used car Today’s price for a  new 2005 PORSCHE 911  Cabriolet  Convertible 2D ($79k) Suppose you buy a brand new  Prosche, drive it for one day but have  to sell it, what do you expect to get for  it? Today’s price for a 2005 used model Trade-in   Private trade Why do car prices drop so much after a  few months?
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05/07/09 Econ 2005 2 Principles of Microeconomics Econ 2005 Economics of information, Section 3,  Chapter 18
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05/07/09 Econ 2005 3 Outline Only section 3 of chapter 18 is covered Subject of Experiment 4 next Friday Markets and information  Another deviation from the standard model An example of market failure Adverse selection, “Market for lemons” Moral hazard
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05/07/09 Econ 2005 4 Buying a used car Suppose you buy a brand new  Prosche, drive it for one day but have  to sell it, what do you expect to get for  it? Today’s price for a  new 2005 PORSCHE 911  Cabriolet  Convertible 2D ($79k) Today’s price for a 2005 used model Trade-in   Private trade Why do car prices drop so much after a  few months?
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05/07/09 Econ 2005 5 The value of private information Dealer pays for average quality, so offers a lower price Price is higher in the private market (through  newspaper ads, etc.) because buyers can screen the 
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This note was uploaded on 03/30/2008 for the course ACIS 2116 taught by Professor Cmeasterwood during the Spring '08 term at Virginia Tech.

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Ch18 - Buying a used car Today's price for a new 2005...

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