Question: 1. Suppose that a seller has not bothered to investigate whether her house has termites; so, she does not know. When asked by a buyer if it does, she says, "I guess not." On efficiency grounds, should this statement be enough to void the contract?
2. Professor Schmidt, a geologist, has agreed to purchase McDonald's farm for a price of $2,000 per acre, which corresponds to the price of good quality farmland in the vicinity. However, Schmidt, on the basis of his own geological studies, is convinced that McDonald's farm contains valuable mineral deposits, which make the property worth $25,000 per acre. Schmidt's true motive is discovered by McDonald before Schmidt takes possession, and McDonald refuses to hand over the property. Schmidt sues for breach of contract. McDonald defends on the ground that Schmidt had a duty to disclose the results of his studies. According to our economic principles, who should win?