Describe the market process

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Picture the used car market: Cars are either high, medium, or low quality. To buyers, high quality cars (which never break down) are worth $8,000, medium quality cars (which sometimes break down) are worth $5,000, and low quality cars (which often break down) are worth $2,000. Buyers initially perceive the odds of any car being a given quality as equal - that is, there is a one-third chance a car is high, medium, or low quality. Sellers know with certainty the quality of their car. Describe the market process - who drops out of the market ?rst? When the market ?nally reaches equilibrium, what types of cars are being sold? What is the price?

Reference no: EM131104469

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