L3 Notes_Part_13 - Buyers earn a profit by purchasing the...

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Information Asymmetry Moral Hazard Adverse Selection
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Information Asymmetry We will have 3 markets with Buyers on the left and Sellers on the right. Each Seller has an unlimited number of products to trade and each Buyer can buy an unlimited quantity from them, one product at a time. Each has the ability to trade and earn a profit. The Seller earns a profit by selling their product for more than it costs them to produce it. They make a choice of quality level at the beginning of each market.
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Unformatted text preview: Buyers earn a profit by purchasing the product for less than they can sell it back to me. Sellers choose 1 of 3 quality levels: A, B, or C, and write this choice on a piece of paper. W.R. Knechel Information Asymmetry Not real money; act as though it is. Market Quality Negotiated # Selection Price - Cost = Profit 1 2 3 4 5 Sell Market Back Negotiated # For - Price = Profit 1 2 3 4 5 Seller Profit Book Buyer Profit Book...
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L3 Notes_Part_13 - Buyers earn a profit by purchasing the...

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