Microeconomics: Principles, Applications, and Tools (8th Edition)

Published by Prentice Hall
ISBN 10: 0-13294-886-9
ISBN 13: 978-0-13294-886-9

Chapter 14 - Imperfect Information: Adverse Selection and Moral Hazard - Exercises - 14.1 Adverse Selection for Buyers: The Lemons Problem - Page 333: 1.6

Answer

\$1800

Work Step by Step

80% chance to get low-quality car. Pay = \$1000 * .80 + \$5000 * .2 = \$1800 You are willing to pay $1,800 for a used car.
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