# 420KSpring10HW7answer - 100 200 300 400 500 100 100,

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Homework 7 (Total 20 points), Due on April 21, Tue. Q1 (3pt.): There are two types of equilibria. One is 2000 p 2120, where both types are traded and to match the demand and supply p equals to 2120, at which the buyers are indiﬀerent between buying and not buying. The other is 900 p 1000, where only lemons are traded and to match the demand and supply p equals to 1000, at which the buyers are indiﬀerent between buying and not buying. Q2 (17pt.): (i) 100 200 300 400 500 100 300 2 , 100 2 0,0 0, - 100 0, - 200 0, - 300 200 200,0 200 2 , 0 2 0, - 100 0, - 200 0, - 300 300 100,0 100,0 100 2 , - 100 2 0, - 200 0, - 300 400 0,0 0,0 0,0 0 2 , - 200 2 0, - 300 500 - 100,0 - 100,0 - 100,0 - 100,0 - 100 2 , - 300 2 Three NE, (200,100), (200,200) and (300,200). (ii) 100 200 300 400 500 100 300 2 , 100 2 0,100 0,100 0,100 0,100 200 300,0 200 2 , 0 2 0,0 0,0 0,0 300 300,0 200,0 100 2 , - 100 2 0, - 100 0, - 100 400 300,0 200,0 100,0 0 2 , - 200 2 0, - 200 500 300,0 200,0 100,0 0,0 - 100 2 , - 300 2 DSE is (400,200). (iii) 1

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Unformatted text preview: 100 200 300 400 500 100 100, 0-100,0-100,-100-100,-200-100,-300 200 200,-100 0,-100-200,-100-200,-200-200,-300 300 100,-100 100,-200-100,-200-300,-200-300,-300 400 0,-100 0,-200 0,-300-200,-300-400,-300 500-100,-100-100,-200-100,-300-100,-400-300,-400 Some explanation on the diagonal entries: Take (100,100) for example. Then, A pays 100 regardless of winning or losing. On the other hand, her expected benet is 400 / 2 = 200. In total, net expected surplus is 200-100 = 100. Likewise, B pays 100 regardless of winning or losing. On the other hand, her expected benet is 200 / 2 = 100. In total, net expected surplus is 100-100 = 0. There is one NE, (200,100). 2...
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## This note was uploaded on 10/25/2010 for the course ECO 420K taught by Professor D during the Spring '10 term at University of Texas at Austin.

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420KSpring10HW7answer - 100 200 300 400 500 100 100,

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