There are two types of used cars, high quality and low quality.Buyers cannot distinguish the two types until after they have purchased them.Owners of high-quality cars will sell them if the price is $2,000 or higher.Owners of low-quality cars will sell them if the price is $1,000 or higher.Buyers value a high-quality used car at $4,266 and a low-quality used car at $1,200.Suppose that 30% of used cars are of high quality and 70% of used cars are of low quality.In equilibrium,
A)only high-quality used cars will be sold.
B)only low-quality used cars will be sold.
C)all used cars will be sold.
D)no used cars will be sold.
E)high-quality used cars will sell for a uniformly higher price than low-quality used cars.

Question

Quizplus · Accepted Answer

In equilibrium, the price of a used car will be $2,000, which is the minimum price at which owners of high-quality cars are willing to sell. At this price, all used cars will be sold, regardless of their quality.

There Are Two Types of Used Cars, High Quality and Low