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) Both good used cars and lemons will sell for $4,500 each.
B) Only lemons will sell, for $800 each.
C) Both good used cars and lemons will sell for $1,000 each.
D) Most used cars offered for sale will be lemons.
Answer: D
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Fill in the blank(s) with the appropriate word(s).
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