Question

consider the market for used computers. there are two groups of buyers in this market: geeks and lusers. the table below shows the values each group places on good computers and bad computers. (geeks place a positive value on bad computers because they believe they can fix most problems.) sellers value the machines at $800 for those in good condition and $10 if in bad condition. assume buyers have no information about whether any single computer is good or bad, assigning a probability of 0.5 to the likelihood of getting either type. given this data, who will buy computers?

Answer 1

Both geeks and lusers will buy computers, with geeks buying both good and bad computers and lusers buying only good computers.

In the market for used computers, there are two groups of buyers: geeks and lusers. Geeks place a positive value on bad computers because they believe they can fix most problems, while lusers only value good computers. Sellers value good computers at $800 and bad computers at $10. Since buyers have no information about the condition of the computers, we assume a 0.5 probability of getting either a good or bad computer.

Based on this data, both geeks and lusers will buy computers. Geeks will buy good and bad computers because they can fix the bad ones, while lusers will only buy good computers.