Solved

When a Buyer Does Not Observe the Quality,based on the Following

Question 137

Multiple Choice

When a buyer does not observe the quality,based on the following table,what is the highest price she will offer for a used car if she ignores adverse selection?
 Types of Cars  Buyer’s Valuation  Seller’s Valuation  Good  (50% probability)  10,0009,500 Bad  (50% probability)  5,0004,500\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Seller's Valuation } \\\hline \begin{array} { l } \text { Good } \\\text { (50\% probability) }\end{array} & 10,000 &9,500 \\\hline \begin{array} { l } \text { Bad } \\\text { (50\% probability) }\end{array} & 5,000 & 4,500 \\\hline\end{array}


A) $10,000
B) $5,000
C) $7,500
D) $7,000

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions