Chapter 9 Market Failure: Imperfect Information, External Benefits, and External Costs

51) Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. Initially buyers believe that 50% of used digital cameras in the market are lemons (low quality). Compared to the outcome with neutral expectations, how many fewer digital cameras are sold in equilibrium?

A) 90

B) 110

C) 140

D) The number of cameras sold in equilibrium is the same as the outcome with neutral expectations.

52) Figure 9.4 represents the market for used 12 megapixel digital cameras. Suppose buyers are willing to pay $400 for a plum (high-quality) used digital camera and $200 for a lemon (low-quality) used digital camera. At any price between $X and $Z,

A) only plums will be supplied.

B) only lemons will be supplied.

C) both plums and lemons will be supplied

D) neither plums nor lemons will be supplied.

Figure 9.5

53) Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), what is consumers' willingness to pay ($X)?

A) $5,000

B) $3,400

C) $3,000

D) $1,700

54) Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), how many plums will be supplied in the market?

A) 30

B) 40

C) 70

D) 120

55) Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. If buyers believe that 80% of used cameras in the market are lemons (low quality), what% of used cars sold will actually be plums?

A) 20%

B) 25%

C) 33.33%

D) 75%

56) Figure 9.5 represents the market for used cars. Suppose buyers are willing to pay $5,000 for a plum (high-quality) used car and $3,000 for a lemon (low-quality) used car. Initially buyers believe that 80% of used cameras in the market are lemons (low quality). Compared to the outcome with these initial expectations, how many fewer cars are sold in equilibrium?

A) 50

B) 80

C) 110

D) The number of cars sold in equilibrium is the same as the outcome with neutral expectations.

Table 9.2

57) Table 9.2 represents 3 markets for used guitars. Which of the markets in Table 14.2 are in equilibrium?

A) 1 only

B) 2 only

C) 3 only

D) 2 and 3

58) Table 9.2 represents 3 markets for used guitars. Which of the markets in Table 14.2 are NOT in equilibrium?

A) 1 only

B) 2 only

C) 3 only

D) 2 and 3

59) In Table 9.2, Market 2 would be in equilibrium if buyers believed lemons account for

A) 55% of the market.

B) 65% of the market.

C) 70% of the market.

D) 80% of the market.

60) In Table 9.2, Market 3 would be in equilibrium if buyers believed plums account for

A) 30% of the market.

B) 40% of the market.

C) 50% of the market.

D) 60% of the market.