Consider a hypothetical used car market in which fifty percent of the cars for sale are low-quality cars and fifty percent of the cars for sale are high-quality cars. Buyers know that half of the cars are high quality and half are low quality, but they do not know which individual cars are high quality and low quality. Sellers know whether their cars are high quality or low quality. Buyers would be willing to pay at most $2,000 for a low-quality car and at most $8,000 for a high-quality car. Sellers of low-quality cars have a willingness to sell of $1,500. Sellers of high-quality cars have a willingness to sell of $7,000.If a buyer offers a price of $5,000 for a used car:
A)only the sellers of low-quality cars will sell.
B)the buyer will gain consumer surplus.
C)the sellers of low-quality cars and high-quality cars will sell.
D)total surplus will be maximized.

Question

Quizplus · Accepted Answer

At a price of $5,000, sellers of low-quality cars will sell because it is above their willingness to sell of $1,500, while sellers of high-quality cars will not sell because it is below their willingness to sell of $7,000.

Consider a Hypothetical Used Car Market in Which Fifty Percent