Two Types of Existing Houses Are for Sale: Ones with a Cracked

question 46

Multiple Choice

Two types of existing houses are for sale: ones with a cracked foundation and ones without.In all other respects,they are identical.Houses without cracked 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.The frequency of solid foundations is 80%.Sellers know which type of house they have but buyers cannot detect a crack.No seller "must" sell his house in order to move and thus no one accepts anything less than its value.
If potential buyers offer their reservation price,owners of houses with solid foundations will find that

• A)buyers are offering more than $200,000.
• B)buyers are offering exactly $200,000.
• C)buyers are offering exactly $180,000.
• D)it is not worth it to sell their house.

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Definitions:

Acreage Allotments

Regulatory measures that limit the amount of land that can be used for farming certain crops to control supply and stabilize market prices.

Price Supports

Government interventions to maintain the market price of a commodity at a certain level to encourage production and protect farmers.

Farm-Family Income

The combined income of all members of a family who reside on a farm, from both farming and non-farming sources.

European Union

A political and economic union of 27 member states that are located primarily in Europe, aiming to ensure peace, stability, and economic cooperation among its members.