sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it $4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be con dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was known lemon, he would be willing to pay $5,000. Suppose that there are many buyers, but a limited number of used cars. What type of used cars lemons or oranges - will be offered for sale in the market, and at what prices?
sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it $4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be con dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was known lemon, he would be willing to pay $5,000. Suppose that there are many buyers, but a limited number of used cars. What type of used cars lemons or oranges - will be offered for sale in the market, and at what prices?
Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN:9781285165875
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter27: The Basic Tools Of Finance
Section: Chapter Questions
Problem 5PA
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Question
![4. Consider the market for Citrus used car in which lemons account for 40% of the used cars offered for
sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for a
price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it at
$4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be confi-
dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was a
known lemon, he would be willing to pay $5,000.
Suppose that there are many buyers, but a limited number of used cars. What type of used cars -
lemons or oranges - will be offered for sale in the market, and at what prices?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F980098bb-e6b0-4600-b477-acfa40512d18%2Ff311485f-1d3a-45e8-850e-31c86e2a14db%2Fdi9stil_processed.png&w=3840&q=75)
Transcribed Image Text:4. Consider the market for Citrus used car in which lemons account for 40% of the used cars offered for
sale. Suppose that each owner of an orange Citrus values it at $12,000; he is willing to part with it for a
price of at least $12,000, but not lower than this. Similarly, each owner of a lemon Citrus values it at
$4,000. Suppose that potential buyers are willing to pay more for each type. If a buyer could be confi-
dent that the car he was buying was an orange, he would be willing to pay $15,000 for it; if the car was a
known lemon, he would be willing to pay $5,000.
Suppose that there are many buyers, but a limited number of used cars. What type of used cars -
lemons or oranges - will be offered for sale in the market, and at what prices?
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