Suppose there are only two kind of cars in the market for used cars: lemons and good cars. A lemon is worth 1,000 both to its current owner and to anyone who buys it. A good car is worth 8,000 to its current and potential owners.
Buyers can't tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the prevailing price of a used car? A) 8,000
B) 1,000
C) 4,500
D) The prevailing price depends on how many lemons and how many good cars are traded.
Question 2
If customer discrimination does not exist, firms that discriminate on the basis of race or sex will
A) have higher costs than those that do not.
B) have the same level of costs as those that do not.
C) have lower costs than those that do not.
D) tend to survive whereas firms that do not discriminate will tend to fail.
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Markets and Institutions Market Story Problem