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# ECON 417 HW6 Akerlof’s Model Of Lemons, Adverse Selection And Market Signaling (Math Problem Sample)

Instructions:

This question comes from the Kreps reading on adverse selection, page 626.

this homework needs hand draw curve attached in the final paper.

thanks

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ECON 417 HW6 Akerlof’s model of lemons, adverse selection and market signaling

The demand curve, supply curve look and other market clearing prices

Based on the information the peaches and lemons will be represented as

PeachesLemonsSellers2,5001,000Buyers3,0002,000

For the peaches the equilibrium price is $ 3,000, and when the seller assumes that the probability is 1/3 and for the lemon being 2/3 the expected value for the seller is $ 1,500 as represented by (1/3)* 2.500+ (2/3)*1000. For the buyer this changes to $ 2333.33 being (1/3)*3000+ (2/3)*2,000.

The demand curve is a horizontal line, as the buyers do not have all the information about the market. Akerlof pointed out that the asymmetric information seeing occurs since the sellers may have private information about t...

Instructor

Course

Date

ECON 417 HW6 Akerlof’s model of lemons, adverse selection and market signaling

The demand curve, supply curve look and other market clearing prices

Based on the information the peaches and lemons will be represented as

PeachesLemonsSellers2,5001,000Buyers3,0002,000

For the peaches the equilibrium price is $ 3,000, and when the seller assumes that the probability is 1/3 and for the lemon being 2/3 the expected value for the seller is $ 1,500 as represented by (1/3)* 2.500+ (2/3)*1000. For the buyer this changes to $ 2333.33 being (1/3)*3000+ (2/3)*2,000.

The demand curve is a horizontal line, as the buyers do not have all the information about the market. Akerlof pointed out that the asymmetric information seeing occurs since the sellers may have private information about t...

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