Figure 9.1
-Figure 9.1 represents the market for used bikes. Suppose buyers are willing to pay $200 for a plum (high-quality) used bike and $50 for a lemon (low-quality) used bike. If buyers have pessimistic expectations about the used bikes in the market, how many used plums (high-quality used bikes) will be sold?

Question

Quizplus · Accepted Answer

When buyers have pessimistic expectations, they expect that a larger proportion of the bikes in the market will be lemons (low-quality). As a result, the demand curve shifts downward. At the same time, the supply curve remains unchanged. The new equilibrium price is $50, which is the price of lemons. At this price, plum (high-quality) sellers will not sell their bikes, as they are only willing to sell at $200. Therefore, the quantity of used plums sold is zero.

Figure 9.1 -Figure 9.1 Represents the Market for Used Bikes. Suppose Buyers