Suppose That in a Market for Used Cars, There Are

question 170

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)Sellers of good used cars will drop out of the market.
• B)Sellers of good used cars will incur losses.
• C)Sellers of lemons will drop out of the market.
• D)Used cars will sell for $3,000.

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Definitions:

Target Profit Pricing

A pricing strategy in which the selling price of a product is determined by adding a desired profit to the cost of making the product.

Price Premium

The extra amount consumers are willing to pay for a product due to perceived added value or quality.

Market Share

The percentage of total sales or revenue in an industry generated by a specific company, indicating its size and competitiveness in the market.

Dollar Sales

The total revenue generated from the sale of goods or services, measured in dollars.