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:

Battle of Bunker Hill

A significant early battle of the American Revolutionary War, fought near Boston in 1775, known for the high British casualties and the famous order, "Don't fire until you see the whites of their eyes."

Royal Governor

The representative of a monarch in colonial territories, responsible for governing in the interest of the crown.

Dunmore

Refers to Lord Dunmore's Proclamation of 1775, where the British colonial governor of Virginia promised freedom to slaves who left their Patriot masters to fight for the British.

Continental Army

The revolutionary war army, authorized by the Continental Congress in 1775, led by General George Washington, that fought against British forces during the American Revolutionary War.