-The market for used cars is shown in the above figure.Neither buyers nor sellers can tell whether any given car is a lemon.Ten percent (10%) of all cars are lemons.Which of the following statements is TRUE?

Question

Quizplus · Accepted Answer

This scenario is an example of the "market for lemons" problem described by George Akerlof. In a market where the quality of goods (in this case, cars) cannot be accurately assessed by buyers, the price of all goods tends to reflect the average quality. Therefore, all cars, regardless of being lemons or not, will be sold at a price that reflects the average quality of all cars in the market, which is $1,900 in this scenario.

-The Market for Used Cars Is Shown in the Above