Suppose There Are Only Two Kind of Cars in the Market

question 92

Multiple Choice

Suppose there are only two kind of cars in the market for used cars: lemons and good cars.A lemon is worth $1,000 both to its current owner and to anyone who buys it.A good car is worth $8,000 to its current and potential owners.Buyers can't tell whether a car is a lemon until after they have bought the car,and there is no warranty.What is the equilibrium price of a used car?

• A) $8,000
• B) $1,000
• C) $4,500
• D) $9,000
• E) The equilibrium price depends on how many lemons and how many good cars are traded.

---

Definitions:

Picketing

A public protest against management practices that involves union members marching and carrying anti-management signs at the employer’s plant.

Management Practices

The methods, strategies, and techniques used by managers to direct and control a business or organization.