1. In 1978, sellers of a good Ford Pinto valued them at $1,111and valued a lemon at $765, while buyers valued good ones at$1,331, and lemons at $780. If an uninformed buyer figured 50% areeach type, then the maximum price the buyer would pay for a Pintowould be _____. Â
A. $1,035.55
B. $1,055.50
C. $1,065.55
D. $1,095.50
2. Consider the Pinto market again, but this time assume thatuninformed buyers figured that fraction 0.45 are good ones, and therest are bad. In this case, the price the buyer is willing to payis _____ and this will _____ an adverse selection problem.
A.$1,033.44; avoid
B. $1,033.44; generate
C. $1,027.95; avoid
D. $1,027.95; generate
3. Consider the used Pinto market one last time. Under imperfectinformation, to avoid adverse selection, the minimum percentage ofgood types necessary to avoid adverse selection is?
A.51.25%
B.55.5%
C.57.6%
D.60.1%
