Question

Suppose that in a market for used cars, there are good used cars and bad used cars (lemons). Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon. Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each. Buyers cannot tell if a used car is reliable or is a lemon. Based on this information, what is the likely outcome in the market for used cars

Answer 1

Based on the given information, the mostly likely outcome in the market for used​ cars is, sellers of good used cars will drop out of the market.

Step-by-step explanation:

From the above mentioned scenario, we can figure out that in the marker of used cars, good used cars have a higher pay and value as compared to the bad used cars. But when it comes to buyers, they cannot really make a differentiation between whether the used cars are well grounded or lemon. So in that case, there is a likelihood of dropping good used cars out of market. This is mainly because when buyers cannot judge the reliability of an item, chances are that the item will drop out.