Buyers are willing to purchase original paintings for $1000, and indistinguishable first-copies for $200. Sellers are willing to sell original paintings for $900 and first-copies for $150. Buyers believe that 50% of the paintings in the market are first copies.
Buyers cannot distinguish between original paintings and first-copies, but sellers know with absolute certainty whether the art that they own is an original or a first copy.
Only first-copies are sold in the market because of which of the following reasons?
1
Expert's answer
2020-07-14T09:41:56-0400
Only first-copies are sold in the market because of imperfect information. It is a situation in which the parties to a transaction have different information, in our case the seller of the paintings has more information about quality than the buyer.
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