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 used cameras in the market are lemons (low quality), what fraction of used cameras sold will actually be lemons (low quality)?

Question

Quizplus · Accepted Answer

According to the graph, the equilibrium price for used cameras is $75. If buyers are willing to pay $125 for a plum (high-quality) used camera and $25 for a lemon (low-quality) used camera, the difference between the two prices is $100. Since the equilibrium price is $75, the midpoint between the two prices, we can assume that half of the cameras sold will be plums and half will be lemons. Therefore, the fraction of used cameras sold that are lemons is 25/35, or 5/7.

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