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 while 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 its value.
Suppose some of the owners with solid foundations remove their homes from the market because they can't sell for a price that is as high as the value of their homes.Then

Question

Quizplus · Accepted Answer

If some owners with solid foundations remove their homes from the market, then the proportion of homes for sale with a cracked foundation will increase. This is because the total number of houses for sale will decrease, but the number of houses with cracked foundations will remain the same. This will make it more likely that buyers will end up purchasing a house with a cracked foundation, as there will be fewer houses without cracks available for sale. Therefore, the buyers' reservation price may not necessarily rise, the owners of cracked slabs are not affected, and there is no reason to believe that the buyers will become more willing to believe the owners' claim of a solid foundation.

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