M10 L1.2 . 1 . The market for lemons Consider a market in which there are many potential buyers and sellers of used cars. Each potential seller has one car, which is either of high quality (a plum) or Ion-4I quality (a lemon). A seller with a lowquality car is willing to sell it for $6,500, whereas a seller with a highquality car is willing to sell it for $16,000. A buyer is willing to pay $7,500 for a low quality car and $18,000 for a highquality car. of course. only the seller knows whether a car is of high or kmI quality, as illustrated in the accompanying image: Suppose that 75% of sellers have lowquality cars. Assume buyers know that 26% of sellers have lowquality cars but are unable to determine the quality ofindividual cars. Suppose that ?5% of sellers have lowquality cars. Assume buyers know that F505 of sellers have low-quality cars but are unable to determine the quality ofindividual cars. If all sellers offer their cars for sale and buyers have no way of determining whether a car is a high-quality plum or a low-quality lemon, the expected value of a car to a buyer is (Hint: The expected value of a car is the sum of the probability of getting a low-quality car multiplied by the value of a low-quality car and the probability of getting a high-quality car multiplied by the value of a highquality car.) Suppose buyers are willing to pay only up to the expected value of a car that you found in the previous question. Since sellers of lowquality cars are willing to sell for $6,500, while sellers of highquality cars are willing to sell for $16,000, v will be willing to participate in this market at that price. The dilemma in this problem is an example of which of the following economic concepts? . _ _. '3:_:3' Screening '32:? Moral hazard Ci Signaling '12:? Adverse selection