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Mairoon Mairoon
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6 years ago
The market for used cars is shown in the above figure. Ten percent (10%) of all cars are lemons. A mechanic is offering to inspect a car for sale and certify that a car is not a lemon. If car sellers are risk neutral, what is the highest price that a car seller would pay for such a service? Who would buy this service?
Textbook 
Microeconomics

Microeconomics


Edition: 6th
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wrote...
#1
6 years ago
Lemon owners would not buy this service because they know that their cars would not pass the inspection. Sellers of good cars would receive $1,900 for their cars if this service did not exist, and $2,000 for their cars with this service. Thus, each owner of a good car would pay no more than $100 for this service. All good car sellers would buy this service since not being certified signals that a car is a lemon.
Mairoon Author
wrote...
#2
5 years ago
Perfect
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