2. Data Response

"In his article, "The Market for Lemons" George Akerlof gave a new explanation for a well-known phenomenon: the fact that cars barely a few months old sell for well below their new-car price. Assume that some cars are "lemons" and some are high quality. If buyers could tell which cars are lemons and which are not, there would be two separate markets: a market for lemons and a market for high-quality cars. But there is often asymmetric information: buyers cannot tell which cars are lemons, but, of course, sellers know."https://www.econlib.org/library/Enc/bios/Akerlof.html

2.1 Is the buyer willing to pay the same price for any car in the above example? 2.2 If half the cars are lemons, and the consumer is willing to pay 50 for a lemon and 500 for a high quality car, what is he likely to bid (use probability in your answer)?

2.3 The seller knows that the car is of high quality. Is he likely to sell at this price?

2.4 If the salesman were to accept the offer, what would that suggest about the car?

2.5 How might we solve the problem of asymmetric information in this example?