Suppose That in New Crankshaft, Pennsylvania, the Quality Distribution of the 8,000

question 27

Multiple Choice

Suppose that in New Crankshaft, Pennsylvania, the quality distribution of the 8,000 used cars on the market is such that the number of used cars of value less than V is V/2.Original owners must sell their used cars.Original owners know what their cars are worth, but buyers can't determine a car's quality until they buy it.An owner can either take his car to an appraiser and pay the appraiser $100 to appraise the car (accurately and credibly) or sell the car unappraised.In equilibrium, car owners will have their cars appraised if and only if the car's value is at least

• A)$100.
• B)$4,000.
• C)$300.
• D)$200.
• E)$400.

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Definitions:

Weak-form Efficient

A form of market efficiency that asserts all past trading information is fully reflected in stock prices, and thus, technical analysis cannot consistently produce excess returns.

Behavioral Patterns

Regularities in the behavior of individuals or groups, often studied in psychology and economics to predict responses to stimuli or decisions.

Arbitrage Activity

The practice of buying and selling equivalent assets in different markets to exploit price discrepancies for a risk-free profit.

Sentiment Indicator

A measure used to gauge the general sentiment of investors or consumers, often derived from surveys or market data.