Figure 9.5
-Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), what is consumers' willingness to pay ($X)?

Question

Quizplus · Accepted Answer

If buyers believe that 80% of used cars in the market are lemons (low quality), then the expected value of a used car is 0.8($3,000) + 0.2($5,000) = $3,400. Therefore, consumers' willingness to pay would be $3,400.

Figure 9.5 -Figure 9.5 Represents the Market for Used Cars. Suppose Buyers