1. Consider a used car market. There is a fraction of p lemons, a fraction of q lemons plus, and a fraction of 1-p-q peaches. Used car sellers value peaches at $200k, lemons plus at $150k and lemons at $ 100k. Used car buyers value peaches at $240k, lemons plus at $170k and lemons at $120k. The seller of the car knows the type of the cars and the potential buyer does not. What type of problem is this? Adverse selection or moral hazard? Why? Suppose p=0.2, q=0.4, what are the market equilibrium prices? What kinds of cars are traded in the equilibrium? What is the potential solution for this type of