-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%) of all cars are lemons.Which of the following statements is TRUE?

Question

-The market for used cars is shown in the above figure.Buyers cannot tell whether any given car is a lemon.Forty percent (40%)of all cars are lemons.Which of the following statements is TRUE?

Quizplus · Accepted Answer

Since buyers cannot distinguish between good cars and lemons, they will only be willing to pay a price that reflects the average quality. This price is likely too low for sellers of good cars, leading to only lemons being sold.

-The Market for Used Cars Is Shown in the Above