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Suppose that Giannina Sapienza wants to buy a used car. She knows that one-third of the available used cars are good cars and two thirds are "lemons. She is willing to pay $15,000 for a good car and $5,000 for a lemon. Assume that this buyer cannot distinguish the good cars from the bad cars. Calculate the equilibrium price in this used-car market. Discuss whether the described environment presents adverse selection and or moral hazard problems.

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M92198826

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