In Ottawa There Are 2000 People Who Want to Sell

Essay

In Ottawa there are 2000 people who want to sell their used cars. Everybody knows that of these cars 1000 are "lemons" but nobody can tell that the car is a lemon by just looking at it. Owners of lemons will be happy to get rid of them at a price of at least $200 but owners of good cars will not be willing to sell them for less than $1500. There are a large number of buyers willing to pay up to $300 for a lemon and up to $2500 for a good used car.
i)If 2000 used cars for sale in Ottawa were for sale, how much would buyers be willing to pay for a used car? What will be the equilibrium price for a good used car? What about a lemon?
ii)If 1200 of the used cars are good cars and only 800 of them were lemons, how much would buyers be willing to pay for a used car? What will be the equilibrium price for a good used car? What about a lemon