Augustus bought his BMW convertible as a new car in 1998 and knows that it is in excellent condition. He now wants to sell it and knows that there are many other similar cars on the used car market that are lemons. As a result:

Question

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Augustus faces the problem of asymmetric information, where he knows the quality of his car but potential buyers do not. This situation, described in Akerlof's "The Market for Lemons," suggests that buyers will be wary of paying premium prices for used cars due to the risk of buying a lemon, thus driving down the price of even high-quality used cars like Augustus's.

Augustus Bought His BMW Convertible as a New Car in 1998