Home / Questions / Consider a used-car market with asymmetric information. The owners of used cars know wha
Consider a used-car market with asymmetric information. The owners of used cars know what their vehicles are worth but have no way of credibly demonstrating those values to potential buyers. Thus, potential buyers must always worry that the used car they are being offered may be a low-quality “lemon.”
a. Suppose that there are equal numbers of good and bad used cars in the market and that good used cars are worth $13,000 while bad used cars are worth $5,000. What is the average value of a used car?
b. By how much does the average value exceed the value of a bad used car? By how much does the value of a good used car exceed the average value?
c. Would a potential seller of a good used car be willing to accept the average value as payment for her vehicle?
d. If a buyer negotiates with a seller to purchase the seller’s used car for a price equal to the average, is the car more likely to be good or bad?
e. Will the used-car market come to feature mostly, if not exclusively, lemons? How much will used cars end up costing if all the good cars are withdrawn?
Dec 05 2019 View more View Less
Last month when Holiday Creations, Inc., sold 39,000 units, total sales were $292,000, total variable expenses were $227,760, and fixed expenses were $36,500.Required:1. ...
Jul 22 2021Which of the following is the process of selecting the data storage and data access characteristics of the database?(a)Logical database design(b)Physical database design(...
Dec 27 2017A 1.5-kg block A rests on a 1.5-kg block B and is attached to aspring of constant 180 N/m. The coefficients of friction betweenthe two blocks are μs=0.95andμk=0.90 and th...
May 08 2020Disney Monorail Consider the same Mark VI monorail described in the preceding exercise. Again assume that heights of men are normally distributed with a mean of 68.6 in. ...
May 23 2021Rocky Top, Inc., purchased some seven-year MACRS welding equipment six years ago at a cost of $73,000. Today, the company is selling this equipment for $25,000. The tax r...
Jun 24 2021A Carnot heat pump cycle operating at steady statewith ammonia as the working fluid. The condenser temperature is120degreesF, with saturated vaporentering and saturated l...
Apr 26 2020Find the gradient of phi = 3x^2y -y^3 z^2 at (1,-2,-1) >
Aug 07 2020Khloe Company imports gift items from overseas and sells them to gift shops and department stores throughout the United States. Khloe Company provided the following infor...
Aug 14 2021The market risk premium for next period is 8.7% and the risk-free rate is 2.6%. Stock Z has a beta of 0.8 and an expected return of 14.5%. What is the reward-to-risk rati...
Nov 30 2019Pullman Corp issued 10-year bonds four years ago with a coupon rate of 8.55 percent. At the time of issue, the bonds sold at par. Today bonds of similar risk and maturity...
Jun 25 2021