Suppose there are four boats available at an auction. The sellers know the quality of their boats but the prospective buyers don't. The buyers know that two of the boats are high-quality and two of the boats are low-quality. Buyers value high-quality boats at $100,000 and low-quality boats at $60,000. Sellers value high-quality boats at $80,000 and low-quality boats at $40,000. If the auctioneer sets a price per boat at $50,000, how many boats and of which type will sellers make available?
A) all four boats
B) two high-quality boats
C) two low-quality boats
D) one high-quality and one low-quality boat

Question

Quizplus · Accepted Answer

Sellers of low-quality boats will sell because the price of $50,000 is higher than their valuation of $40,000. Sellers of high-quality boats will not sell because the price is below their valuation of $80,000.

Suppose There Are Four Boats Available at an Auction