Consider a used car market in which half the cars are good and half are bad (lemons).A rational buyer in this market should

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Since the buyer knows that half the cars in the market are lemons, she cannot offer the same price for both good and bad cars. If she offers the most she would pay for a good car, she risks overpaying for a lemon. On the other hand, if she offers the most she would pay for a lemon, she risks missing out on a good car at a lower price. A rational buyer would offer a price somewhere between the price she would pay for a good car and the price she would pay for a lemon, factoring in the probabilities of getting either type of car.

Consider a Used Car Market in Which Half the Cars