Suppose Joe has a reliable two-year old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year Honda Civic that is reliable and only $10,000 for one that's not reliable. Lauren cannot tell whether Joe's car is reliable, but she believes that only 20 percent of two-year old Hondas for sale in the market are reliable and that the other 80 percent are not reliable. Will Lauren buy Joe's car?

A. Yes, because Lauren will be willing to pay Joe more than $13,000.
B. No, because Lauren will not be willing to pay Joe $13,000.
C. Yes, because Lauren is willing to pay $14,000 for a car that's reliable.
D. Maybe, because Lauren might be willing to pay as much as $14,000.


Answer: B

Economics

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