Microeconomics Quiz
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MARKET FAILURE, EFFICIENCY & PUBLIC POLICY
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Consider the market for used cars, where there are high-quality cars ('cherries') and low-quality cars ('lemons'). Sellers know their car's quality, but buyers do not. Sellers of cherries have a reservation price of $10,000. Sellers of lemons have a reservation price of $4,000. Buyers are willing to pay $12,000 for a cherry and $6,000 for a lemon. If buyers believe there is a 50% chance of getting either type of car, which of the following will occur?
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