You Are in the Market for a Used 2006 Honda

Multiple Choice

You are in the market for a used 2006 Honda Accord. You know that half of the 2006 Accords are lemons and half are peaches. If you could be assured that the Accord you were buying was a peach, you would be willing to pay up to $10,000. On the other hand, you would only be willing to pay $2,000 for a lemon. You have no ability to discern whether any particular Accord is a lemon or a peach. Sellers of Accords, on the other hand, are likely to know whether their particular car is a lemon or a peach. Suppose sellers of lemons will sell their cars for $1,500 or more and peach sellers will be willing to sell their cars for $8,500 or more. Over time the price in the market for 2006 Accords will ________ and ________ will be traded.

A) be between $8,500 and $10,000 for peaches and between $1,500 and $2,000 for lemons; both lemons and peaches
B) be between $8,500 and $10,000; only peaches
C) be between $1,500 and $2,000 for lemons; only lemons
D) be between $1,500 and $10,000; both lemons and peaches