Discuss the "market for lemons” model. In your answer you have to: (i) clearly outline the full model, (ii) define the variables and functions that you use and explain the decisions facing the parties involved, (iii) derive and explain the results, (iii) specifically: show that a market failure may occur, (iv) show what determines whether a market failure occurs, (v) explain why it may occur.
Hi, questions are in the screenshot image. below is the advanced
Lecture: Imperfect Information syllables
1 Asymmetric Information
1.1 Principal-Agent Problems with Hidden Actions
1.2 General Discussion
2 TheGeneral-Principal Agent
3 A Simple Example of a Principal-Agent Problem
3.1 CASE1: FULL INFORMATION
3.2 Case2- Unobserved Effort
4 Principal-Agent - Hidden Information
4.1 CaseI: Complete Information
4.2 Diagram
4.3 CaseII: HiddenInformation
5 Education as a Signal
5.1 Perfect Information
5.2 Imperfect Information
5.3 Equilibrium (perfect Bayesian, PBE)
6 The Market for Lemons
6.1 Warranties as a Signal for Quality
7 Static
7.1 Revelation of Information
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