Suppose there are lemon (used) cars worth every price from ZMW 1,000 to ZMW 3000 to new owners, with each price equally likely. Further you expect that a car worth X to a new owner is worth 0.75X to its current owner. Suppose that there is a nite supply of cars at each price, while there is a much larger number of potential buyers (so the equilibrium price is the valuation of the potential buyer). Lastly assume that the quality of the car is unknown to potential buyers, due to information asymmetry.

(a) Calculate the equilibrium price and average quality of cars sold.

(b) Which cars are sold and which ones are not?

(c) Is the equilibrium ecient?