Suppose that everyone is risk neutral, potential car buyers value lemons at $1,000 and good used cars at $3,000, the reservation price of lemon owners is $750, and the reservation price of owners of high quality used cars $1,750. The share of current owners who have lemons is x = 1/2 = 1,000/(1000+1000). For what values of x do all potential sellers sell their used cars? Describe the equilibrium.

Solve for all values of x such that all cars are sold, and describe the equilibrium.

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The question refers to a market for used cars Here lemons are the low quality used cars and the othe... View the full answer