quality Q, distributed evenly from Q=.75 to Q =2. Buyers value Q at $1000; sellers at $600. Sellers know the Q for their cars with certainty, but buyers cannot and therefore assume average Q. How many cars sell? Is there market failure?

quality Q, distributed evenly from Q=.75 to Q =2. Buyers value Q at $1000; sellers at $600. Sellers know the Q for their cars with certainty, but buyers cannot and therefore assume average Q. How many cars sell? Is there market failure?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the market for lemons problem. Suppose there are six cars of
quality Q, distributed evenly from Q=.75 to Q =2. Buyers value Q at
$1000; sellers at $600. Sellers know the Q for their cars with certainty,
but buyers cannot and therefore assume average Q. How many cars sell?
Is there market failure?

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