Adverse Selection of Laptops. Consider the market for used laptops, with knowledgeable sellers and ignorant buyers. Half the laptops in existence are plums and half are lemons. Each buyer is willing...

Adverse Selection of Laptops. Consider the market for used laptops, with knowledgeable sellers and ignorant buyers. Half the laptops in existence are plums and half are lemons. Each buyer is willing to pay $800 for a plum and $400 for a lemon. The minimum supply price for a plum is $200 and the minimum supply price for a lemon is $50.

a. In equilibrium, will the market be “thin” or will all the used laptops in the market be lemons? Explain and illustrate your answer with a complete graph.

b. Suppose that at a price of $500, the quantity of plums is 40 and the quantity of lemons is 60. Is this an equilibrium? Explain and illustrate your answer with a complete graph.