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.Since not all owners of solid-foundation homes will be happy with the choice of removing their home from the market,they may instead
A) simply keep it on the market indefinitely at $200,000.
B) lower their price to $180,000.
C) lower their price to $196,000.
D) offer a warranty to fix any foundation problems that develop in the next 12 months.
E) lower their price.
Correct Answer:
Verified
Q106: Asymmetric information exists when
A) both the seller
Q107: Insurance companies practice statistical discrimination because
A) this
Q108: The idea that insurance is purchased more
Q109: Markets in which asymmetric information is present
Q110: The reason a warranty on a used
Q112: Jim and Dylan are both applying for
Q113: In which of the following markets is
Q114: In the absence of legal requirements,insurance is
Q115: To solve the problem of the lemons
Q116: If those with a greater likelihood of
Unlock this Answer For Free Now!
View this answer and more for free by performing one of the following actions
Scan the QR code to install the App and get 2 free unlocks
Unlock quizzes for free by uploading documents