When a Buyer Does Not Observe the Quality,based on the Following

question 137

Multiple Choice

When a buyer does not observe the quality,based on the following table,what is the highest price she will offer for a used car if she ignores adverse selection?
$$\begin{array} { | l | l | l | } \hline \text { Types of Cars } & \text { Buyer's Valuation } & \text { Seller's Valuation } \\\hline \begin{array} { l } \text { Good } \\\text { (50\% probability) }\end{array} & 10,000 &9,500 \\\hline \begin{array} { l } \text { Bad } \\\text { (50\% probability) }\end{array} & 5,000 & 4,500 \\\hline\end{array}$$

• A) $10,000
• B) $5,000
• C) $7,500
• D) $7,000

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Definitions:

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Pertaining to or characterized by clear, systematic reasoning and thought.

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Based on logic or reason; capable of coherent thought processes leading to sound decisions or judgments.

Continuum

A continuous sequence in which adjacent elements are not perceivably different from each other, though the extremes are quite distinct.

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