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Question:Suppose you are looking at a particular used car.
Question:Need help with this one.Suppose you are looking at a particular used car. Given its brand, age and overall condition, its true value to you could be 40, 50 or 60 (these are the three possible types), whatever your true value is, the sellers true value is 20% lower (so there is some room for trade). The seller knows his value but you do not know yours. All you think is that each of the three values is equally likely. (a) Consider the best possible equilibrium in that as many car types as possible are being transacted in this equilibrium. What car types are being transacted and what is the range of possible market prices? (b) consider the worst possible equilibrium in that only one car type is being transacted in this equilibrium. What car type is being transacted and what is the range of possible market prices? c) consider an intermidiate equilibrium in which more car types than in b) are being transacted. What are these car types are being transacted and what is the range of possible market prices? d) if the seller can commit to publicly bruning some amount of sale revenue (charity for example) before car is sold.Can this type of signaliing make sure that all car types are being transacted? Why?
