Microeconomics

5. Adverse Selection Consider the market of used smartphones. Assume that buyers are risk neutral and think that an used smartphones may be of bad quality (with value of $50) or of good quality (with value of $250). They think that there is a ftyfty chance of getting a good quality used smartphone.| (a) What is the expected value of a used smartphone from the point of View of a buyer? (b) If you are planning the sell your used smartphone, knowing that the value of your smartphone is $100, can you make a prot in this market? (c) If sellers with phones with a value higher than $150 think that they can't make a prot - as consumers are not willing to pay more than $150 for a used smartphone , will they stay or leave the market? How do you think this will affect the probability of getting a good quality smartphone in the market? Should consumers adjust their prior beliefs about the quality of a used smartphone? (d) What can be done to potentially solve this