Economics 330 T Quiz Spring 2014

This study source was downloaded by 100000802832151 from CourseHero.com on 11-01-2022 10:45:25 GMT -05:00https://www.coursehero.com/file/9141276/ps3/ Economics 330T: Spring 2014 Helen SchneiderProblem Set 3DUE: WEDNESDAY, MARCH 19NAME: Spurthi TaruguI. Adverse Selection.1. (a) In Akerlofs lemons problem, with symmetric information, suppose that 5 cars are available with quality levels 0, 1, 2, 3, and 4. If the sellers have a reservation price of $2,000 per unit of quality, and the buyers value cars at $3,000 per unit of quality, what will the equilibrium price per car be? (10 points)At quality level of 0, the cars have no value. At quality level of 1, sellers have a reservation price of $2000 and buyers value cars at $3,000, so the equilibrium price is between $2000-$3000. At quality level of 2, sellers have a reservation price of $4000 and buyers value cars at $6,000, so the equilibrium price is between $4000-$6000. At quality level of 3, sellers have a reservation price of $6000 and buyers value cars at $9,000, so the equilibrium price is between $6000-$9000. At quality level of 4, sellers have a reservation price of $8000 and buyers value cars at $12,000, so the equilibrium price is between $8000-$12000. At quality level of 5,