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.