Figure 9.2
-Figure 9.2 represents the market for used cameras. Suppose buyers are willing to pay $125 for a plum (high-quality) used camera and $25 for a lemon (low-quality) used camera. If buyers believe that 50% of the used cameras in the market are lemons (low quality), how much will pay for a used camera?

Question

Quizplus · Accepted Answer

Since buyers believe that 50% of the used cameras in the market are lemons (low quality), there is a 50-50 chance of getting a plum (high-quality) or a lemon (low-quality) used camera. Therefore, on average, buyers are willing to pay the average price of $75 = [(0.5 x $125) + (0.5 x $25)] for a used camera. Therefore, the best choice is C) $75.

Figure 9.2 -Figure 9.2 Represents the Market for Used Cameras. Suppose Buyers