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Two Types of Existing Houses Are for Sale: Ones with a Cracked

Question 86

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Two types of existing houses are for sale: ones with a cracked foundation and ones without.In all other respects,they are identical.Houses without cracked foundations are worth $200,000;those with cracked foundations are worth $200,000 minus the $20,000 to fix the crack,or $180,000.The frequency of solid foundations is 80%.Sellers know which type of house they have,but buyers cannot detect a crack.No seller must sell his house in order to move,and thus no one accepts anything less than the value of their house.
-Refer to the information above.As some of the owners with solid foundations remove their homes from the market because they cannot get their price,


A) the buyers' reservation price rises.
B) the owners of houses with cracked foundations also begin to remove their homes from the market.
C) the proportion of houses for sale with a cracked foundation rises.
D) the buyers become more willing to believe the owners' claim of a solid foundation.
E) the buyers' reservation price is unchanged.

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