Question
Consider the market for used cars with many buyers and sellers. Buyers are willing to pay $1,000 for a lemon car and $2,000 for a
Consider the market for used cars with many buyers and sellers. Buyers are willing to pay $1,000 for a lemon car and $2,000 for a good car. Sellers' reservation price is $,800 for a lemon car and $ 1800 for a good car.
3.a . Suppose neither buyers nor sellers can tell whether any given car is a lemon or not. If 40% of all cars are lemon cars and both buyers and sellers know this percentage, which types of cars are sold for what prices?
3.b . Now, suppose buyers cannot tell whether any given car is a lemon or not, but sellers know whether their car is a lemon or not. If 40% of all cars are lemon cars and both buyers and sellers know this percentage, which types of cars are sold for what prices?
3.c. In the case of (3.b), if 10% of all cars are lemon cars which types of cars are sold for what prices?
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