Question

Suppose that in Milford, Connecticut, owners of used cars that are lemons value their cars at $2,500, and owners of used cars that are reliable value their cars at $6,000. There are equal quantities of each type of car on the market. Buyers value low-quality cars at $1,500 and high-quality cars at $7,000. In this market:

a. only low-quality cars will be sold at a price of $1,500.
b. only low-quality cars will be sold at a price of $2,500.
c. all cars will sell at a price of $4,250.
d. only high-quality cars will be sold at a price of $6,000.
e. only high-quality cars will be sold at a price of $7,000.

Answer 1

e. only high-quality cars will be sold at a price of $7,000

Step-by-step explanation:

Based on the information given only cars that are of high-quality will be sold at the amount of $7,000 in the market reason been that we were told that Buyers of low-quality cars value them at the amount of $1,500,$2,500 and $6,000, while high-quality cars on the other hand are been value at the amount of $7,000 because they are of high quality compare to the low quality car which are value at a different price and are sold at a lesser amount.

Therefore In this market only high-quality cars will be sold at the amount of $7,000.