Figure 9.3
-Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. If buyers believe that 50% of the used refrigerators in the market are lemons (low quality), how much will they be willing to pay for a used refrigerator?

Question

Quizplus · Accepted Answer

If buyers believe that 50% of the used refrigerators in the market are lemons (low quality), then they will only be willing to pay the average value of a lemon and a plum, which is (100 + 300)/2 = $200. Therefore, the buyers will only be willing to pay $200 for a used refrigerator, regardless of whether it is a plum or a lemon.

Figure 9.3 -Figure 9.3 Represents the Market for Used Refrigerators. Suppose Buyers