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Consumers know that some fraction x of all new cars produced and sold in the market are defective. The defective ones cannot be identified except
Consumers know that some fractionxof all new cars produced and sold in the market are defective. The defective ones cannot be identified except by those who own them. Cars do not depreciate with use. Consumers are risk-neutral and value nondefective cars at $10,000 each. New cars sell for $8,000 and used ones for $2,000. (Note that since buyers are risk-neutral, the price of a new car reflects the expected value of purchasing a car that may or may not be defective.)
What is the fractionx?
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