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 plums (high quality)?

Question

Quizplus · Accepted Answer

Given that buyers are willing to pay $125 for a plum camera and $25 for a lemon, and they believe 50% of the cameras are lemons, the average price they would be willing to pay is the average of these two values, which is $75. This price is below what they are willing to pay for a plum camera, indicating that sellers of plum cameras would not find it profitable to sell at this price. However, the question asks for the fraction of cameras sold that will actually be plums, assuming some transaction occurs at this average belief price. Since the setup does not provide enough information to directly calculate the number of plum cameras sold under these conditions (as it would depend on the supply side conditions which are not given), and the options provided do not match a direct calculation from the given information, the correct interpretation based on the information provided would be that the market conditions described would not favor the sale of plum cameras, leading to an incorrect interpretation of the options provided. This question seems to be based on a misunderstanding of the market dynamics described, as the correct answer would depend on additional information not provided in the question.

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