What is the price buyer is willing to pay at the beginning

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Reference no: EM131954791

Lemons Market: A buyer and a seller can potentially trade a car of uncertain quality; the car is equally likely to be a lemon, or a peach. The true value of a lemon is $2,000 and the true value of a peach is $5,000. Buyers buy cars based on their expectation of the true value of cars in the market. Suppose the buyer cannot tell the true quality of the car, but the seller knows the quality of his car. What is the price the buyer is willing to pay at the beginning? Given the price that buyer is willing to pay, what kind of cars will leave the market? In the end, what kind of cars will be traded on the market and what is the trading price?

Reference no: EM131954791

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