There Are Two Types of Used Cars, High Quality and Low

question 17

Multiple Choice

There are two types of used cars, high quality and low quality.Buyers cannot distinguish the two types until after they have purchased them.Owners of high-quality cars will sell them if the price is $2,000 or higher.Owners of low-quality cars will sell them if the price is $1,000 or higher.Buyers value a high-quality used car at $3,466 and a low-quality used car at $1,200.Suppose that 30% of used cars are of high quality and 70% of used cars are of low quality.In equilibrium,

• A)all used cars will be sold.
• B)only low-quality used cars will be sold.
• C)no used cars will be sold.
• D)only high-quality used cars will be sold.
• E)high-quality used cars will sell for a uniformly higher price than low-quality used cars.

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Definitions:

Payable

An amount of money that is owed and should be paid.

Definite Period

A specific, fixed duration of time identified in a contract or agreement during which certain actions must be performed or conditions met.

Presented

Shown, given, or made available for viewing or consideration.

Payment

The transfer of money or goods from one party to another as compensation for goods or services provided or as a fulfillment of a legal obligation.