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

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

A. $1,035.55

B. $1,055.50

C. $1,065.55

D. $1,095.50

2. Consider the Pinto market again, but this time assume that uninformed buyers figured that fraction 0.45 are good ones, and the rest are bad. In this case, the price the buyer is willing to pay is _____ and this will _____ an adverse selection problem.

A.$1,033.44; avoid

B. $1,033.44; generate

C. $1,027.95; avoid

D. $1,027.95; generate

3. Consider the used Pinto market one last time. Under imperfect information, to avoid adverse selection, the minimum percentage of good types necessary to avoid adverse selection is?

A.51.25%

B.55.5%

C.57.6%

D.60.1%

Expert Solution

Rahul Sunny answered 7 months ago

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