Suppose That There Are Two Types of Houses for Sale

question 24

Multiple Choice

Suppose that there are two types of houses for sale: those with solid foundations and those with cracked foundations. In all other respects, the two types of houses are identical. Houses with solid foundations are worth $200,000, while those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack, or $180,000. Sellers know which type of house they have, but buyers cannot detect whether the foundation has a crack. Suppose that 80 percent of the houses for sale have a solid foundation and 20 percent of the houses for sale have a cracked foundation. In the long run, we would expect:

• A)80 percent of the houses for sale to have a solid foundation, 20 percent to have a cracked foundation, and houses to sell for $196,000.
• B)100 percent of the houses for sale to have a cracked foundation and to sell for $180,000.
• C)100 percent of the houses for sale to have a solid foundation and to sell for $200,000.
• D)100 percent of the houses for sale to have a cracked foundation and to sell for more than $180,000.

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Definitions:

Reciprocal-Concession Effect

A psychological principle where individuals feel compelled to make concessions to others when concessions are made to them, particularly in negotiation contexts.

Social Facilitation

The tendency to perform simple or well-practiced tasks better in the presence of others than alone.

Enhanced Performance

Improvements in functioning, efficiency, or output, often achieved through interventions or optimizations.

Audience Present

The state or condition in which a group of people is physically in attendance to observe or listen to an event, performance, or presentation.