-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%) of all cars are lemons.Which of the following statements is TRUE?

Question

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Ten percent (10%)of all cars are lemons.Which of the following statements is TRUE?

Quizplus · Accepted Answer

Given that buyers cannot distinguish between good cars and lemons, the market will price cars to reflect the average risk of buying a lemon. This means that all cars, both good and lemons, will be sold at a price that reflects this average risk, assuming rational behavior and market equilibrium.

-The Market for Used Cars Is Shown in the Above