Home » PROBLEM #5 [5 points]: Imagine that you are perusing a copy of the Auto Trader magazine in search of a used car.

# PROBLEM #5 [5 points]: Imagine that you are perusing a copy of the Auto Trader magazine in search of a used car.

PROBLEM #5 [5 points]:

Imagine that you are perusing a copy of the Auto Trader magazine in search of a used car. Suppose that there are 50 cars offered for sale and 50 buyers interested in a used car purchase. You know that sellers of “Lemons” (bad quality cars) would be willing to accept \$4000 and that buyers would be willing to pay up to \$4,500 for a “Lemon”. Furthermore, sellers of “Cherries” (good quality cars) would be willing to accept \$6000 and that buyers would be willing to pay up to \$7000 for a “Cherry”.

Assume the form of buyers’ guesses about the value of the average car in this market is; α (willingness to pay for “Lemons”) + (1 – α) (willingness to pay for “Cherries”) = value of the average car. where α = proportion of “Lemons” in the market and (1 – α) = the proportion of “Cherries” in the market.

a) How many “Lemons” can exist in this market before the market fails (i.e. no “Cherries” will be offered for sale)?

b) Offer a unique example (i.e. not covered in our notes/text) of a situation that illustrates the features of either adverse selection or moral hazard. [2 points]

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.