Suppose That There Are Two Types of Cars,good and Bad

question 115

Multiple Choice

Suppose that there are two types of cars,good and bad.The qualities of cars are not observable but are known to the sellers.Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows:
$$\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Beller's Valuation } \\\hline \text { Good } & & \\\text { (50\% probability) } & 5,000 & 4,500 \\\hline \text { Bad } & & \\\text { (50\% probability) } & 3,000 & 2,500 \\\hline\end{array}$$ When buyers do not observe the quality,what happens in the market?

• A) Both good and bad cars are traded.
• B) Only good cars are traded.
• C) Only bad cars are traded.
• D) Neither good nor bad cars are traded.

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Definitions:

Anorexia Nervosa

An eating disorder characterized by an abnormally low body weight, an intense fear of gaining weight, and a distorted perception of body weight.

ADHD

A neurodevelopmental condition known as Attention Deficit Hyperactivity Disorder is distinguished by a lack of focus, heightened activity levels, and impulsive actions.

Autism

A developmental disorder characterized by difficulties with social interaction and communication, and by restricted and repetitive behavior, interests, or activities.

Cyclothymic

Relating to or characterized by cyclothymia, a mood disorder with alternating periods of mild depression and hypomania.