Question I33 Consider a modified version of solved problem 19.2 in the textbook. Assume there are 1,000 wallet producers in the market and that a proportion 5].l of those produce highquality wallets. As before, let the production costs be $10 for low-quality wallets and $20 for high-quality ones. Assume buyers value wallets 52 above their production cost. For what values of 5,, can wallet producers profit from producing and selling high-quality wallets? [a] Onlyr 5:! = 1 lb] Only 5,. = {J {c} iiil'lyrs'rL 4'. 4,15 Ed] Anysn 2 4,15 Question Dd what strategies can reduce problems arising from situations with asymmetric information about types or attributes, that is, problems of adverse selection? [a] Screening Eb] Signaling [ci Third-partyr accreditation to] All of the above Question I35 The TouristTrap model describes a situation where the existence of a search cost, c, and price ignorance of buyers lead to an equilibrium in which all sellers practice the monopoly price. This result holds... ta} only when the number of sellers is small [b] only when search costs are high [ci for any search cost c 2:- 0 Ed] even when buyers can buy repeatedly at the same location thus gradually learning the prices practiced by other sellers Quiz 11: Asymmetric Information (Ch. 19) Question 01 Consider the textbook example in Figure 19.1 (Market for Lemons) and four possible scenarios: 1. Car quality is known to buyers, and peach seller's reservation price is v = $5,000 2. Car quality is known to buyers, and peach seller's reservation price is v = $7,000 3. Car quality is unknown to buyers, and peach seller's reservation price is v = $5,000 4. Car quality is unknown to buyers, and peach seller's reservation price is v = $7,000 Assume supply is fixed: there are 1,000 units of each car type, while demand is unlimited. Calculate consumer surplus, CS, producer surplus, PS, and total surplus or welfare, W, in each scenario. Which of the following alternatives is correct? (a) In scenario 1, CS = $0 and PS = W = $4,000,000 (b) In scenario 2, CS = $0 and PS = W = $1,000,000 (c) In scenario 3, CS = $2,000,000, PS = $2,000,000, and W = $4,000,000 (d) In scenario 4, CS = $0 and PS = W = $2,000,000 Question 02 Consider a modified version of solved problem 19.1 in the textbook. As before, suppose everyone is risk neutral and let 8, be the proportion of used cars that are low-quality (lemons). Assume potential buyers value lemons at $2,000 and peaches at $10,000. The reservation price of owners is $1,000 for lemons and $6,000 for peaches. For what values of 6 do all used cars sell? (a) Any #1 > 1/4 (b) Only 8, = 2/3 (c) Any 01 $ 1/2 (d) Any @ $ 2/3Question 06 The game below is a variation of the cheap talk game in Table 19.1. Firm's job Demanding Undemanding 2 High Worker's 5 3 ability 2 4 Low X 4 There is a 50% chance the worker is of high ability. Which of the following alternatives is correct? (a) For any X