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?
A) Sellers of good used cars will drop out of the market.
B) Sellers of good used cars will incur losses.
C) Sellers of lemons will drop out of the market.
D) Used cars will sell for $3,000.
Answer: A
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The real-balance effect indicates that at higher price levels
A) the real value of money holdings increase, resulting in increased saving. B) the purchasing power of money will increase. C) the real value of money holdings fall, resulting in decreased spending. D) the value of the dollar will increase.
Industries X and Y both have four-firm concentration ratios of 65 percent, but the Herfindahl index for X is 1,500 while that for Y is 2,000. These data suggest:
A. greater market power in X than in Y. B. greater market power in Y than in X. C. that X is more technologically progressive than Y. D. that price competition is stronger in Y than in X.