Lemons market

Suppose in the market for ECN100 classes at UC Davis, there are three faculty teaching Boik, Bushnell, and Rezaee. Suppose Boik is willing to teach for $200 per student, Bushnell is willing to teach for $300 per student, and Rezaee is willing to teach for $100 per student and each faculty can teach up to 100 students. Suppose there are a very large number of risk neutral students that value ECN100 with Boik at $240, ECN100 with Bushnell at $360, and ECN100 with Rezaee at $120 and instead of paying tuition as a whole they are just paying to take the single class.

Suppose students and faculty begin with complete information and are able to enroll in whichever ECN100 class they prefer.

A. What will be the equilibrium price and quantity in the markets for Boik, Bushnell, and Rezaee's ECN100 classes?

Now assume students only see "Instructor to be determined." when their registration period comes along. Students will assign their own probabilities that the class they sign up for is taught by each instructor.

B. How might students determine these probabilities? Will students' probabilities be objective or subjective?

Now assume students assign equal probability that the class they sign up for is taught by each instructor (so 1/3 each to start).

C. What will now be the equilibrium price and quantity in the markets for Boik, Bushnell, and Rezaee's ECN100 classes?

Now assume Professor Boik gets deported to Canada and no longer teaches at UCD. So now only Bushnell and Rezaee teach. Assume the same willingness to teach and value for the professors and students but now students place a 50% probability on each faculty teaching the class when they enroll.

D. What will now be the equilibrium price and quantity in the markets for Bushnell and Rezaee's ECN100 classes?

Finally, assume classes go online and this changes students' value for Bushnell teaching ECN100, while their value for Prof. Rezaee stays the same (and Professor Boik is still in Canada).

E. What values of Bushnell teaching ECN100 will ensure students are willing to register regardless of who they might get as a teacher (so all 200 seats are filled)?