Figure 9.3
-Figure 9.3 represents the market for used refrigerators. Suppose buyers are willing to pay $300 for a plum (high-quality) used refrigerator and $100 for a lemon (low-quality) used refrigerator. Initially buyers believe that 50% of used refrigerators in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer refrigerators are sold in equilibrium?

Question

Quizplus · Accepted Answer

In a market with neutral expectations, buyers would be willing to pay a price that reflects the average quality of refrigerators. However, when buyers believe that 50% of the refrigerators are low quality, they adjust their willingness to pay accordingly. This adjustment leads to a lower equilibrium price, which in turn reduces the quantity of refrigerators that high-quality sellers are willing to supply. The difference in the number of refrigerators sold, compared to the neutral expectations scenario, is represented by the choice that indicates a reduction in the quantity of refrigerators sold due to the shift in buyer expectations towards a higher proportion of low-quality goods in the market.

Figure 9.3 -Figure 9.3 Represents the Market for Used Refrigerators. Suppose Buyers