# Asymmetric Information for Market of Used Cars

2) Suppose that there is asymmetric information in the market for used cars. Sellers know the quality of the cars that they are selling, but buyers do not. Buyers know tat there is a 40% chance of getting a lemon a low quality used car . A high quality used car is worth $30,000, and a low quality used car is worth,$15,000. Based on this probability, the most that a buyer would be willing to pay for a used car is $--------(round to the nearest dollar.)

4) During the course of the year, the labor force consists of the same 995 people. Of these, 17 lack skills that employers desire and hence remain unemployed throughout the year. All the same time, every month during the year, 38 different people become unemployed, and 38 other different people who were unemployed find jobs. There is no cyclical unemployment. a.) calculate the frictional unemployment rate-------% (response as a percentage rounded to two decimal places).

5) Suppose in 2014, the cost of a market basket of goods was $2,021. In 2016, the cost of the same market basket of goods was $2,107. Calculate the price index for 2016, using the price index formula, assume 2014 is the base year. (index # rounded to one decimal place)

6) Consider the following : price index in 2015-------------94

2016--------100

2017---------115

2018 --------130

2019--------146

The base year is -----------

8)The following transactions take place in 2000:

1) an elderly couple go to the movies and pay $150 for the tickets.

2) a family sells numerous knick-knacks at a garage sale for $125.

3) a young executive buys 100 shares of IBM for $10,000.

4)a college student receives $800 from his parents.

5) a young couple down on their luck receives food stamps worth $230.

6) a plumber performs work for a neighbor and receives $125 in cash that he doesn't record in his company's records.

7) A PHYSICIAN operates on a friend's husband and charges $2000 for the operation instead of her usual $5000.

8) a teenager paints the porch on his parents house. the paint cost $95. The cost of hiring a professional to do the job would have been $400.

9) a high school graduate works a summer job and makes $7,000.

10) the federal reserve bank sells a bond for $2,000.

The addition to gross domestic product is

a) $13,525 b. $9,245 c. $25, 525 d. $17,645

9) Consider the following hypothetical date for the U.S. economy in 2018 (trillions of dollars), and assume that there are no statistical discrepancies or other adjustments.

category value category value

profit $2.7 exports $1.7

indirect business taxes & transfers 0.7 government transfer payments 2.1

rent 0.6 personal income tax & non tax payments 1.5

interest 0.7 imports 1.6

wages 8.2 corporate taxes & retained earnings 0.5

depreciation 1.3 social security contributions 2.2

consumption 12.1 government spending 1.8

a.) Calculate the gross domestic income $--------trillion. ( rounded one decimal place.)

10) The following table gives nominal GDP and the price index for two years. Find real GDP in each year, and fill in the table. (round answers to two decimal places.)

year nominal GDP price index real GDP

2010 6,700 105

2011 7,236 109

https://brainmass.com/economics/basic-economic-concepts-and-principles/asymmetric-information-market-used-cars-617511

#### Solution Preview

Hi,

Get the answer with attachment.

Answer:

Given that,

Buyer knows the probability of getting a lemon car = 40%

Price of high quality used car = $30,000

Price of low quality used car = $15,000

Therefore,

The most te buyer would be willing to pay=40%*$15,000+(1-40%)*$30,000=$24,000

Given ...

#### Solution Summary

This solution helps to answer some macroeconomic questions.