Sarah is holding a yard sale before she moves out of NewYork. Among other items, she's selling some used video games of hers. Rosa attends the yard sale and she considers buying a video game, although she cannot at all tell what the quality of the game is before he actually buys it.

The video games quality, q, is distributed q U[1,3].

Suppose that Us = 3q. Assume Rosa visits Sarah's yard sale.

a. If Sarah sets a price of p, what is Rosa's updated belief on the expected quality of the video game?

b. What is Rosa's willingness to pay?

c. Will trade take place in equilibrium? If so, what quality of video games will be sold?