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 $9,000 and $12,000 and only peaches will be traded.
B. be between $3,000 and $12,000 and both lemons and peaches will be traded.
C. be between $3,000 and $4,000 for lemons and only lemons 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: C
You might also like to view...
Which of the following would be an example of contractionary fiscal policy?
A. Congress enacts economic sanctions on North Korea. B. Congress increases the corporate tax rate by 3 percent. C. Congress decreases the rate for the top income tax bracket by 5 percent. D. Congress increases infrastructure spending by 2 percent.
When conducting cost-benefit analysis, it is important to ignore previously incurred costs and previously received benefits
Indicate whether the statement is true or false
What are Eurobanks and how are they different from domestic banks?
What will be an ideal response?
The proportion of domestic demand for a good that is satisfied by domestic production relative to that supplied by imports is determined by:
a. the interplay of domestic demand and supply curves and the domestic equilibrium price of the good. b. the interplay of demand and supply curves in the international market and the international equilibrium price of a good. c. the interplay of domestic supply and demand curves and the international equilibrium price of a good. d. the different trade restrictions like tariffs and quotas created by the domestic government. e. the interplay of demand and supply curves in the international market and the domestic price of the good