Question

Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons").

5. Suppose the market for used cars has 75 sellers with cars in good condition and 25 sellers with cars in bad condition ("lemons"). There are an unlimited number of potential buyers. Buyers are willing to pay $10,000 for cars in good condition while the sellers value these cars at $7,000. Buyers are willing to pay $300 for cars in bad condition while the sellers value these cars at $500. Only the sellers know the condition of their car. a. Which cars should sell to achieve efficiency? b. Which cars actually sell in the market, and at what price(s)?

Answer 1

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