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

question 117

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: When a buyer does not observe the quality, what is the highest price she will offer for a used car if she ignores adverse selection?

• A) $2,500
• B) $3,000
• C) $4,000
• D) $4,500

---

Definitions:

Uterine Horn

The pointed end of the uterus where it meets the fallopian tubes in many animals, playing a key role in the reproductive system.

Urinary Bladder

A muscular sac in the pelvic cavity that stores urine before it is excreted from the body.

Major Calyx

A part of the kidney that collects urine from the minor calyces before it moves to the renal pelvis.

Ureters

Tubes that transport urine from the kidneys to the bladder.