In Rustbucket, Michigan, There Are 200 Used Cars for Sale

question 5

Multiple Choice

In Rustbucket, Michigan, there are 200 used cars for sale, half of them are good and half of them are lemons.Owners of lemons are willing to sell them for $500.Owners of good used cars are willing to sell them for prices above $900 but will keep them if the price is lower than $900.There is a large number of potential buyers who are willing to pay $700 for a lemon and $1,900 for a good car.Buyers can't tell good cars from bad, but original owners know.

• A)There will be an equilibrium in which all used cars sell for $1,300.
• B)The only equilibrium is one in which all used cars on the market are lemons and they sell for $700.
• C)There will be an equilibrium in which lemons sell for $500 and good used cars sell for $900.
• D)There will be an equilibrium in which all used cars sell for $700.
• E)There will be an equilibrium in which lemons sell for $700 and good used cars sell for $1,900.

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Definitions:

Equilibrium Quantity

The quantity of goods or services supplied that is equal to the quantity demanded at the market equilibrium price.

Equilibrium Price

The price at which the quantity of goods supplied is equal to the quantity of goods demanded, also known as the market-clearing price.

Equilibrium Quantity

The quantity of goods or services that are supplied and demanded at the equilibrium price, where the amount producers are willing to sell equals the amount consumers are willing to buy.

Price of Ingredients

The cost of raw materials used in the production of goods, which can impact the final price of the product and profitability of producers.