Author Question: If all used cars in a market with symmetric information about quality are sold at the same price, ... (Read 87 times)

moongchi · **on:** Jul 1, 2018

If all used cars in a market with symmetric information about quality are sold at the same price, then

A) sellers of good quality cars are subsidizing sellers of lemons.
B) buyers of good quality cars are subsidizing buyers of lemons.
C) sellers of lemons are subsidizing sellers of good quality cars.
D) sellers of good quality cars are subsidizing buyers of lemons.

Question 2

To induce an agent to work hard, a principal may offer the agent a bonus, in other words, an extra payment if a performance target is hit.

Suppose that the agent's performance is affected by factors beyond the agent's control, for example umbrellas are demanded more on a rainy day. Under what conditions may the bonus not induce the agent to work harder? A) The agent is very risk averse.
B) The agent is very risk loving.
C) The agent is risk neutral.
D) The principal is risk neutral.