You are in the market for a used 2016 Toyota Corolla. You know that half of the 2016 Corollas are lemons and half are peaches. If you could be assured that the Corolla you were buying was a peach, you would be willing to pay up to $12,000. On the other hand, you would only be willing to pay $4,000 for a lemon. You have no ability to discern whether any particular Corolla is a lemon or a peach. Sellers of Corollas, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $3,000 or more and peach sellers will be willing to sell their cars for $9,000 or more. Over time the price in the market for 2016 Corollas will
A. be between $3,000 and $12,000 and both lemons and peaches will be traded.
B. be between $3,000 and $4,000 for lemons and only lemons will be traded.
C. be between $9,000 and $12,000 and only peaches will be traded.
D. be between $9,000 and $12,000 for peaches and between $3,000 and $4,000 for lemons and both lemons and peaches will be traded.
Answer: B
You might also like to view...
The most powerful tool unions have at their disposal when bargaining with management is
A) the Taft-Hartley Act. B) the ability to strike. C) the secondary boycott. D) the power of pure competition.
Which of the following results from unexpected increases in the rate of inflation?
A. Creditors are made better off. B. Redistributions of income and wealth between different groups. C. Decreased uncertainty. D. Increased windfall profits to creditors who have lent large amounts of money.