In Cao Roto, 200 people want to sell their used cars. As we all know, 100 of these cars are "junk" and 100 are "good." The problem is, no one except the original owner knows which one is in good condition and which one is a mess. If clumsy car owners can ditch the car at any price above 200 euros, they will be happy. Good used car owners are willing to sell them for anything over 1,500 euros, but if they can't, they keep them. Many buyers are willing to pay 2,500 euros for a used car, but they are willing to pay 300 euros for a garbage truck. When these buyers are unsure of the quality of the car they buy, they will be willing to pay the expected price based on the information they have.

(a) If the 200 used cars in Cao Roto were put up for sale, how much would buyers be willing to pay for one? Are owners of good used cars available to sell them at that price? Would an equilibrium situation be reached in which all used cars were sold? Describe the equilibrium situation that would be reached in Cao Roto.

(b) Suppose that instead of having 100 cars of each class, everyone in this city knew that there are 120 good cars and 80 junk cars. How much would buyers be willing to pay for a used car? Would owners of good used cars be willing to sell them at that price? Would an equilibrium situation be reached in which all used cars were sold? Would an equilibrium situation be reached in which the pots were sold? Describe the possible balance or balances that would be reached in Cao Roto.