Lemons & Information

1. Lemons & Information Induction day

2. What is something worth? £2 £10 £20 £ 1,000

3. It could be any of them…. • E.g. used CD • New CD/download • Original Vinyl • Original vinyl 1st pressing 1st copy signed by the band in a known place/time/context • It depends…. But to value it you need the information. • Price is what something is valued at. (is this a good enough definition?)

4. Something is worth what the buyer and seller agree it to be worth when they make the deal. • A thing that helps them to form their judgement is information

5. What happens when buyer & seller each have good information? • Divide into 2 Markets. Each Market has buyers & sellers so we have 4 groups. • Market 1 ‘Good Cars’ Buyers & Sellers • Market 2 ‘Lemons’ Buyers & Sellers • You will be given role play cards. • Do NOT disclose the information • Objective Buy & sell a car within your market (record the final price you pay).

6. Debrief • How many sold • Price • Value generated • How did you feel?

7. What happens when only the seller has good information? • Change of assumption. • Buyers cannot tell difference between good cars & lemons, and cannot tell if seller is being truthful • Sellers do know if their car is a lemon or not

8. What happens when only the seller has good information? • Buyers will be given new role playing cards • Do NOT disclose the information • Objective Buy & sell a car within this market (record the final price you pay).

9. Debrief • How many sold • Price • Value generated • Why did the buyers of good cars reduce the amount they were willing to pay? • How did you feel?

10. Follow Up 1 • What are the consequences of info failure? • Suggest how the situation can be improved • What if anything could govt do? • What are the potential risks of this ?

11. Follow Up 2 • Gathering information has costs. What are some? • Firms pay other firms to do research. This implies that ‘research’ has a commercial selling price. • Why do firms buy research, isn’t it just adding to their costs? • What is the role of price in a market? What happens to the market when pricing breaks down?

12. Skills in economics What skills have you used today? What other skills do you think economists (ie you from September) use? Your chance to use them – pre course work for delivery 1st lesson in September

13. Buyer pink You can no longer tell the difference between a good car and a lemon. The maximum you will pay for a car is £7. You want to buy a good car. You will pay between £12 and £6 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ You can no longer tell the difference between a good car and a lemon. The maximum you will pay for a car is £7. You want to buy a good car. You will pay between £12 and £6 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ You can no longer tell the difference between a good car and a lemon. The maximum you will pay for a car is £7. You want to buy a good car. You will pay between £12 and £6 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’

14. Buyer green You want to buy a ‘lemon’. You will pay between £5and £2 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ You can no longer tell the difference between a good car and a lemon. But you’re happy with a Lemon You will pay between £5and £2 You want to buy a ‘lemon’. You will pay between £5and £2 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ You can no longer tell the difference between a good car and a lemon. But you’re happy with a Lemon You will pay between £5and £2 You want to buy a ‘lemon’. You will pay between £5and £2 For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ You can no longer tell the difference between a good car and a lemon. But you’re happy with a Lemon You will pay between £5and £2

15. Seller white You are selling a good car. The minimum price that you will accept is £8, or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £8 You are selling a lemon. The minimum price you will accept is £3, or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £3 You are selling a good car. The minimum price that you will accept is £8, or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £8 You are selling a lemon. The minimum price you will accept is £3 or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £3 You are selling a good car. The minimum price that you will accept is £8, or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £8 You are selling a lemon. The minimum price you will accept is £3 or no sale For the purposes of the activity try to reach agreement ie there’s no prizes for ‘best negotiator’ but you cannot accept less than £3