Recall the Application. Free-agent baseball pitchers who switch teams spend a relatively l

Recall the Application. Free-agent baseball pitchers who switch teams spend a relatively l

Recall the Application. Free-agent baseball pitchers who switch teams spend a relatively long time on the disabled list compared to those who do not switch teams.

107) Recall the Application. Baseball teams know more about the health of free agent pitchers than the pitchers themselves.

108) Why do used goods of different qualities often sell for the same price, while used goods of different sizes sell for different prices?

109) You have just graduated from college and are buying a brand new car. There are two on the lot: a green one and a blue one. Both have the same features for the same price. Is there a potential asymmetric information problem?

110) Suppose that buyers assume that there is a 30% chance of getting a plum, and 8 of 10 cars in the used car market are lemons. Is this an equilibrium?

111) Suppose you own a plum (high-quality) used car that you are thinking about selling. Further, suppose you know that buyers assume that there is a 30% chance of getting a plum, and that 8 of 10 cars currently in the used car market are lemons (low-quality). Would you likely sell your car?

112) It has been said that if buyers of used goods are pessimistic it becomes a self-fulfilling prophecy. In other words, buyer pessimism causes the market to have more low-quality goods. Explain why this is true.

Recall the Application about the free-agent market for professional baseball pitchers to answer the following question(s).

 

113) Recall the Application. Why is there adverse selection in the baseball pitcher free agent market?