Consider a market for a specific kind of used cars, say 2009 Honda Civic. Suppose that in use these cars have proved to be either trouble free and reliable (peach) or have many things go wrong (lemon). The buyers are willing to pay $8,000 for a peach and $4,000 for a lemon. Each seller, on the other hand, values his/her car at $6,000 if it is a peach, and $2,000 if it is a lemon. The information about quality of any given car is not symmetric between its owner and potential buyers. The owner of the car knows perfectly well whether it is a peach or a lemon, whereas potential buyers don’t. The buyers only know that 60% of the Civics are peaches and the remaining 40% are lemons.
Required:
a. What will be the market price for a Civic? Which cars will be traded? (For definiteness, suppose that there is a limited stock of used Civics and a larger number of potential buyers.) Assume that the example above takes place in month 0. Every month that passes, all sellers of Civics – regardless of type – are willing to accept $100 less than they were the month before. Also, with every passing month buyers are willing to pay $400 less for a peach than they were the previous month and $200 less for a lemon.
b. What will be the market price for a Civic in month 1? Which cars will be traded?
c. What will be the market price for a Civic in month 2? Which cars will be traded?
Answers: 2
Other questions on the subject: Business
Business, 22.06.2019 00:10, laya35
What are the forecasted levels of the line of credit and special dividends? (hints: create a column showing the ratios for the current year; then create a new column showing the ratios used in the forecast. also, create a preliminary forecast that doesn’t include any new line of credit or special dividends. identify the financing deficit or surplus in this preliminary forecast and then add a new column that shows the final forecast that includes any new line of credit or special dividend.) now assume that the growth in sales is only 3%. what are the forecasted levels of the line of credit and special dividends?
Answers: 1
Business, 22.06.2019 10:00, silviamgarcia
Scenario: you have advised the owner of bond's gym that the best thing to do would be to raise the price of a monthly membership. the owner wants to know what may happen once this price increase goes into effect. what will most likely occur after the price of a monthly membership increases? check all that apply. current members will pay more per month. the quantity demanded for memberships will decrease. the number of available memberships will increase. the owner will make more money. bond's gym will receive more membership applications.
Answers: 1
Business, 22.06.2019 10:50, jadeafrias
You are evaluating two different silicon wafer milling machines. the techron i costs $285,000, has a three-year life, and has pretax operating costs of $78,000 per year. the techron ii costs $495,000, has a five-year life, and has pretax operating costs of $45,000 per year. for both milling machines, use straight-line depreciation to zero over the project’s life and assume a salvage value of $55,000. if your tax rate is 24 percent and your discount rate is 11 percent, compute the eac for both machines.
Answers: 3
Business, 22.06.2019 21:30, mydoggy152
Which of the following best explains the purpose of protectionist trade policies such as tariffs and subsidies? a. they make sure that governments have enough money to pay for fiscal policies. b. they give foreign competitors access to new markets around the world. c. they allow producers to sell their products more cheaply than foreign competitors. d. they enable producers to purchase productive resources from everywhere in the world.
Answers: 1
Do you know the correct answer?
Consider a market for a specific kind of used cars, say 2009 Honda Civic. Suppose that in use these...
Questions in other subjects:
Health, 10.12.2020 07:10
Health, 10.12.2020 07:10
Law, 10.12.2020 07:10
