There is a market with 100 people who want to sell their used cars and 100 people who want to buy a used car. it is well known generally that half the cars are lemons and half are plums. the current owner of a car (for sale) knows its quality but none of the prospective buyers know if a given car is a lemon or a plum. the owner of a lemon is willing to accept $500 and the owner of a plum is willing to accept $1,000. the buyers of a lemon are willing to pay $600 and the buyers of a plum are willing to pay $1,200.

(i) given buyers offer a price equal to the expected quality of used cars, how many sales ("trades") will take place in the market, and of whattype of quality (i. e., lemons or plums)?
(ii) what is the maximum amount of consumer surplus created from the sales?

answer; the cpi;

two years ago, when picking flowers in the mountains back of yosemite valley, i found a book. it was blotted and storm-beaten; all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however; many of the inner pages were well preserved. and although all were more or less stained and torn, whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today; its granite pages have been torn and blurred by the same storms that wasted the castaway book.

two years ago, when picking flowers in the mountains back of yosemite valley; i found a book. it was blotted and storm-beaten, all of its outer pages were mealy and crumbly. the paper seemed to dissolve like the snow beneath which it had been buried, however, many of the inner pages were well preserved. and although all were more or less stained and torn; whole chapters were easily readable. this is the condition of the great open book of yosemite glaciers today, its granite pages have been torn and blurred by the same storms that wasted the castaway book.