SQ4_InformationAK(1)

A if you can tell whether cars or lemons or plums are

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Unformatted text preview: problems (that is, they’re lemons), and the other half run just fine (that is, they’re plums). You’re willing to pay $10,000 for a plum, but only $4,000 for a lemon. People who own plums are willing to sell them for any price at or above $8,000, and people own lemons are willing to sell them for any price above $2000. a. If you can tell whether cars or lemons or plums, are you likely to trade with someone who owns a plum? Explain. b. Now suppose that sellers have private information about whether the cars they’re selling are lemons or plums. If you assume that half of all used Ford Focuses for sale are lemons and half are all plums, what’s...
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This note was uploaded on 02/13/2014 for the course ECON 2 taught by Professor Kim during the Winter '08 term at UCSD.

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