Question

Asymmetric information:

1. You need transportation so you look for a used-motorcycle. You see an ad saying that a bike for sale is in perfect condition, almost never driven except by an old lady who used it to go to church on Sundays. Do you believe her? How does your faith (or disbelief) in his words effect the price you are willing to pay for the bike?

2. You are thinking of selling your old motorcycle. You have taken very good care of it and know that it is in very good condition and will serve a new owner very well. Do you think that potential buyers will believe you and will pay you a fair price? Why or why not?