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Hello! Hopefully you can help me I'm super confused: Car buyers value a high-quality used car at $16,000 and a low-quality used car at $8,000.

Hello! Hopefully you can help me I'm super confused:

Car buyers value a high-quality used car at $16,000 and a low-quality used car at $8,000. The supply of high-quality cars is given by QH = -200 + 0.05PH ; the supply of low-quality cars is given by QL = -200 + 0.1PL

Potential buyers cannot tell the difference between high-quality and low-quality cars when purchasing one.

a. Assume that buyers believe there is a 75% chance that a used car will be of high quality.

What would be the price buyers are willing to pay for a used car of unknown quality?

b. If the price you found in (a) is offered in the market for used cars, how many high-

quality cars will be offered for sale? How many low-quality cars? What will be the

overall proportion of high-quality cars offered for sale? Does it match buyers'

expectations?

c. What is likely to happen when the true proportion of high-quality cars becomes known?

Describe the impact on the price of a used car and the quantity of high-quality used cars

offered for sale. What is the logical conclusion of this process?

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