Read the following fictional scenarioand write a report that addresses the questions shown below:
One in every four new netbooks is defective. The defective ones, however, cannot be identified except after being used for several months. Consumers are risk neutral and value a non-defective
netbook at €2000. Netbooks do not depreciate physically with use. A second-hand netbook sells for €600.

1. Explain what is meant by the term ‘reservation price’. What is the reservation price of a new netbook in this scenario?
2. Assesshow the reservation price of a new netbook would alter if the proportion of defective ones changed?
3. Discuss the types of signals a buyer should look for when purchasing a new netbook to reduce the likelihood of it being defective?