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 - 14.2 Responding to the Lemons Problem - Page 334: 2.1

Answer

price of the car cost of the device

Work Step by Step

Maximum amount willing to pay for something depends on the price and the cost to procure. The maximum amount that a consumer would be willing to pay for the device equals the price of a high-quality (plum) car minus the expected price of a used car without the device.
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