Assume there are two players, a buyer and a seller of a used car. The seller knows whether the car is a good car or a lemon and the buyer knows the probability distribution of good cars and lemons. Assume the probability of a good car is 70 percent and the probability of a lemon is 30 percent. Assume that both buyers and sellers have identical tastes and there are only two types of cars. Good cars have a quality value of $20,000 and lemons have a quality value of $10,000.

a. Under perfect information where there is no informational asymmetries, which car is sold for how much?

b.What is the expected value of a car? Given this information, how will the buyer be informed whether the car is a lemon or not?

c. What would theAkerloflemons model predict to be the final outcome of this game? In other words, which cars will be sold and for how much? Explain.