The market for used sea kayaks has both a high-quality and low-quality variety. High-quality kayaks are valued at $3,000 and low-quality ones at $800. Supply of used high-quality kayaks is Q_H = 0.5P_H - 1,000, and the supply of used low-quality kayaks is Q_L = P_L - 500. Potential buyers cannot distinguish between a high-quality and a low-quality used kayak. Buyers believe that only 3 of every 10 used kayaks are of high quality. In this market, ____ high-quality used kayaks will be sold. A) 2,000 B) 1,460 C) 270 D) 0

Question

Quizplus · Accepted Answer

Given that buyers cannot distinguish between high-quality and low-quality kayaks and believe only 3 out of 10 are high-quality, the market faces a classic "lemons" problem, leading to adverse selection. High-quality kayak sellers are unlikely to participate in the market under these conditions, as the price they would receive does not reflect the true value of their kayaks. Therefore, no high-quality used kayaks would be sold.

The Market for Used Sea Kayaks Has Both a High-Quality