Table 9.4
-Refer to Table 9.4. In which market do buyers underestimate the chance of getting a lemon?
A) 1 and 2 only
B) 1 and 3 only
C) 2 and 3 only
D) none of the above

Question

Table 9.4
-Refer to Table 9.4. In which market do buyers underestimate the chance of getting a lemon?
A) 1 and 2 only 
B) 1 and 3 only 
C) 2 and 3 only 
D) none of the above

Quizplus · Accepted Answer

In market 1, buyers are willing to pay more than the true value of the good indicating that they are overestimating its quality. In market 2, the price is closer to the true value indicating that buyers are accurately assessing the quality of the good. In market 3, buyers are willing to pay less than the true value of the good indicating that they are underestimating its quality. Therefore, buyers underestimate the chance of getting a lemon in markets 1 and 3 only.

Table 9.4 -Refer to Table 9.4. in Which Market Do Buyers Underestimate