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In 1978, sellers of a good Ford Pinto valued them at $1,111 and valued a lemon...

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Economics

In 1978, sellers of a good Ford Pinto valued them at $1,111 andvalued a lemon at $765, while buyers valued good ones at $1,331,and lemons at $780. If an uninformed buyer figured 50% are eachtype, then the maximum price the buyer would pay for a Pinto wouldbe _____.  

Group of answer choices

$1,035.55

$1,055.50

$1,065.55

$1,095.50

Consider the Pinto market again, but this time assume thatuninformed buyers figured that fraction 0.45 are good ones, and therest are bad. In this case, the price the buyer is willing to payis _____ and this will _____ an adverse selectionproblem.  

Group of answer choices

$1,033.44; avoid

$1,033.44; generate

$1,027.95; avoid

$1,027.95; generate

c

onsider the used Pinto market one last time. Under imperfectinformation, to avoid adverse selection, the minimum percentage ofgood types necessary to avoid adverse selection is?

Group of answer choices

51.25%

55.5%

57.6%

60.1%

Answer & Explanation Solved by verified expert
4.2 Ratings (579 Votes)
a Buyer value 1330 for good cars and 780 for lemon and figured 50 of each type Expected price they will be willing ot pay Value of good car Probability of getting good car Value of lemon car Probability of    See Answer
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