Suppose that in a market for used cars,there are good used cars and bad used cars (lemons).Consumers are willing to pay as much as $9,000 for a good used car but only $3,000 for a lemon.Sellers of good used cars value their cars at $7,500 each and sellers of lemons value their cars at $1,500 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?

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DGiven the information, sellers of good used cars will likely drop out of the market because the price buyers are willing to pay when they cannot differentiate between good cars and lemons will be somewhere between $3,000 and $9,000. This average price will not reflect the true value of the good cars, making it unattractive for their sellers to participate. Consequently, the market will likely settle at a price that does not reflect the value of the good cars, such as $6,000, which is an average that might emerge in the market, but it's less than what sellers of good cars value their cars at ($7,500), leading to their exit from the market.

Suppose That in a Market for Used Cars,there Are Good