Lemons market

Suppose in the market for ECN100B classes at UC Davis, there are three faculty teaching Boik, Bushnell, and Rezaee. Suppose Boik is willing to teach for $100 per student, Bushnell is willing to teach for $150 per student, and Rezaee is willing to teach for $50 per student and each faculty can teach up to 100 students. Suppose there are a very large number of risk neutral students that value ECN100B with Boik at $120, ECN100B with Bushnell at $180, and ECN100B with Rezaee at $60 and instead of paying tuition as a whole they are just paying to take the one class.

Suppose students and faculty begin with complete information and are able to enroll in whichever ECN100B class they prefer.

A. What will be the equilibrium price and quantity in the markets for Boik, Bushnell, and Rezaee's ECN100B classes?

Now assume students only see "Instructor to be determined." when their registration period comes along. Students assign equal probability that the class they sign up for is taught by each instructor (so 1 3 each to start).

B. What will now be the equilibrium price and quantity in the markets for Boik, Bushnell, and Rezaee's ECN100B classes?

Now assume Professor Boik gets a job at another university 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.

C. What will now be the equilibrium price and quantity in the markets for Bushnell and Rezaee's ECN100B classes?

Finally, assume students look at the past history of who taught ECN100B and come up with dierent subjective probabilities of Bushnell teaching ECN100B, .

D. What would have to be for students to be willing to register regardless of who they might get as a teacher (so all 200 seats are lled)?