When the market for used cars is separated into two high-quality cars and low-quality markets, the market equilibrium price is $10,000 for high-quality used cars and $5,000 for low-quality low cars. When there is asymmetric information, consumers are willing to pay these prices but they believe 75% of the cars are low-quality and only 25% of the cars are high quality. In this case we can expect that all used cars will be sold for about

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    $6,250 and this low price will drive the high quality used cars from the market.
     $8,750 and this the mix of high-quality and low-quality used cars on the market will shift towards high-quality cars.
     $7,500, and this low price for high-quality used cars will drive the high-quality cars out of the market.
     $7,500, and the mix of high-quality and low-quality used cars on the market will not change.
asked Jun 2, 2013 in Economics by anonymous
    

1 Answer

0 votes
$6,250 and this low price will drive the high quality used cars from the market.
answered Jun 3, 2013 by Xyz ~Expert~ (3,650 points)

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