Question: Suppose that everyone in the used car example in the
Suppose that everyone in the used car example in the text is risk neutral, potential car buyers value lemons at $ 4,000 and good used cars at $ 8,000, the reservation price of lemon owners is $ 3,000, and the reservation price of owners of high-quality used cars is $ 7,000. The share of current owners who have lemons is θ in the example in the text, θ = 1/2 = 1000 / (1000 + 1000)]. For what values of θ do all the potential sellers sell their used cars? Describe the equilibrium.
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