2011HW2 - Economics 210C Problem Set #2 (Due April 29)...

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Economics 210C Problem Set #2 (Due April 29) Spring 2011 1. Consider a market for used cars. The common utility function for buyers is u b ( n,m ) = 1 . 5 qn + m and the common utility function for the sellers is u s ( n,m ) = qn + m , where n = 0 , 1 denotes the number of cars, q the quality of the car, and m denotes income. Buyers are each endowed with bundle (0 , ¯ m ) and sellers each endowed with bundle (1 , 0). Assume the number of buyers equals the number of sellers. a. Specify the range of competitive equilibrium prices for the case with complete information about the qualities of the cars on both sides. b. Assume qualities of the cars are independently and uniformly distributed on [0, 2]. Assume further buyers are not informed of the qualities of the cars nor are sellers informed of the qualities of the cars they own. This is the case with incomplete but symmetric information. Find the range of competitive equilibrium prices. c. Assume now sellers are informed of the qualities of their cars but buyers do
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This note was uploaded on 12/26/2011 for the course ECON 210C taught by Professor Qin during the Fall '09 term at UCSB.

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2011HW2 - Economics 210C Problem Set #2 (Due April 29)...

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