How much deadweight loss does the information loss generate in the market for lemons?

A woman plans to divorce her philandering husband. If she can prove he cheated on her she will Show more A woman plans to divorce her philandering husband. If she can prove he cheated on her she will receive a $500000 cash settlement. If she cannot her settlement will be $250000. Her lawyer offers to take the case and presents her with the following payment options: a $100000 flat fee or one-third of the settlement. He promises to hire at his own expense a private detective (at a cost of $25000) to prove infidelity. but the client is not sure whether to trust the lawyer. If a detective is hired he or she will be certain to provide proof of adultery. What is the optimal method of paying the lawyer and what is the optimal outcome for both the woman and the lawyer? The woman should choose the percentage payment and the lawyer will not hire the private detective. The woman should choose the flat fee and the lawyer will hire the private detective. The woman should choose the percentage payment and the lawyer will hire the private detective. The woman should choose the flat fee and the lawyer will not hire the private detective. 19. Consider the market for used cars shown in the figure below. The left-hand panel shows the market for low-quality cars (lemons); the right-hand panel shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale lemons would sell for $8000 and plums would sell for $16000. Suppose that buyers recognize that the chance of getting a lemon is 50 percent but they are unable to tell whether a car is a lemon or a plum. If the market works to the extent that prices reflect the expected value of a used car the result will be an increase in the quantity of lemons supplied and a decrease in the quantity of plums supplied (the exact amounts determined in a previous question). Compared to a market with perfect information how much deadweight loss does the information loss generate in the market for high-quality used cars? How much deadweight loss does the information loss generate in the market for lemons? $400000 in the market for high-quality cars; $200000 in the market for low-quality cars $400000 in the market for high-quality cars; $800000 in the market for low-quality cars $400000 in the market for high-quality cars; no deadweight loss in the market for low-quality cars $400000 in each market for a total of $800000 20. Consider the market for used cars shown in the figure below. The left-hand panel shows the market for low- quality cars (lemons); the right-hand panel shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale lemons would sell for $8000 and plums would sell for $16000. Suppose that buyers recognize that the chance of getting a lemon is 50 percent but they are unable to tell whether a car is a lemon or a plum. If the market works to the extent that prices reflect the expected value of a used car how many high-quality automobiles will be offered for sale at the market price? 400 500 450 550 Consider the market for used cars shown in the figure below. The left-hand panel shows the market for low-quality cars (lemons); the right-hand panel shows the market for high-quality cars (plums). If all buyers and sellers had full information about the quality of automobiles being offered for sale lemons would sell for $8000 and plums would sell for $16000. Suppose that buyers recognize that the chance of getting a lemon is 50 percent but they are unable to tell whether a car is a lemon or a plum. If the market works to the extent that prices reflect the expected value of a used car the result will be an increase in the quantity of lemons supplied and a decrease in the quantity of plums supplied (the exact amounts determined in a previous question). Compared to a market with perfect information how much deadweight loss does the information loss generate in the market for high-quality used cars? How much deadweight loss does the information loss generate in the market for lemons? $400000 in the market for high-quality cars; $200000 in the market for low-quality cars $400000 in the market for high-quality cars; $800000 in the market for low-quality cars $400000 in the market for high-quality cars; no deadweight loss in the market for low-quality cars $400000 in each market for a total of $800000 Show less

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