What will be the equilibrium market price for the product

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Suppose that a buyer is willing to pay $30,000 for a lemon and $60,000 for a plum. The sellers on the other hand are willing to sell lemons for $30,000 and plums for $50,000. The buyers cannot distinguish between lemons and plums whereas the sellers know what they are selling.

  • What will be the equilibrium market price for the product, if the proportion of lemons is 40%? Is it the efficient outcome?
  • If the buyers can distinguish between lemons and plums, what will be the market price? Would this be efficient outcome?
  • If suppose a dealer is willing to offer guarantees to plum owners and everybody believes him. What is the maximum price the dealer can charge for this guarantee?

Reference no: EM132499932

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