Suppose That in a Market for Used Cars,there Are Good

question 118

Multiple Choice

Suppose that in a market for used cars,there are good used cars and bad used cars (lemons) .Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon.Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?

• A)Both good used cars and lemons will sell for $4,500 each.
• B)Only lemons will sell,for $800 each.
• C)Both good used cars and lemons will sell for $1,000 each.
• D)Most used cars offered for sale will be lemons.

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Definitions:

World Bank

An international banking entity that delivers financial support in the form of loans and grants to less affluent countries, aiming to assist them in implementing capital projects.

Low-interest Loans

Loans offered with a lower than average interest rate, typically provided to encourage borrowing or stimulate economic activity.

Exports

Commodities or services developed in one country and exported to buyers in another country.

CAFTA

The Central American Free Trade Agreement, a trade agreement between the United States and Central American countries to reduce trade barriers.