Mix of Lemons and Plums in the Month-Old Car Market. Suppose the value of a high-quality monthold car (a plum) is $30,000 (the same as the purchase price of a new car), while the value of a...

Mix of Lemons and Plums in the Month-Old Car Market. Suppose the value of a high-quality monthold car (a plum) is $30,000 (the same as the purchase price of a new car), while the value of a low-quality month-old car (a lemon) is $15,000. Suppose that at a price of $20,000 per car, 5 of 8 cars on the used market are plums and 3 of 8 are lemons. a. How much is the typical buyer willing to pay for a used car in the mixed market?

b. Is the $20,000 price an equilibrium price? Why or why not?

c. Suppose that for every 8 new cars sold by new-car dealers, 6 are plums and 2 are lemons. Why is the equilibrium mix in the used car market different from the mix of new cars sold?