In New Crankshaft, Pennsylvania, there are 200 used cars for sale; 50% of these cars are good and 50% of them are lemons.
Owners of lemons are willing to sell them for $500. Owners of good used cars are willing to sell them for prices above $1,500 but will keep them if the price is lower than $1,500.
There is a large number of potential buyers who are willing to pay $600 for a lemon and $2,300 for a good car.
Buyers are aware of the proportion of lemons offered for sale, but cannot tell good cars from bad.
There will be an equilibrium in which all used cars sell for more than $1,300.
There will be an equilibrium in which lemons sell for $600 and good used cars sell for $2,300.
There will be an equilibrium in which all used cars sell for less than $1,300.
d. The only equilibrium is one in which all used cars on the market are lemons and
they sell for $600.
e. There will be an equilibrium in which lemons sell for $500 and good used cars sell for $1,300.
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