What will the equilibrium price and quantity in each market be in this second stage?.
The market for used cars includes both high quality and low quality models. The two submarkets can Show more The market for used cars includes both high quality and low quality models. The two submarkets can be described by the following equations. QH D = 160000 -10PH QH S = -48000 +13.5PH QL D = 110000 10PL QL S = 20000 + 10PL Where the subscript H refers to the high quality market and the subscript L refers to the low quality market. Suppose that sellers of cars can tell the difference but buyers cannot. You may assume that buyers assume that all cars will be of average quality so that an average demand curve is appropriate. What will the short run equilibrium quantity and price be in each market? (Hint: You will need to average the two demand curves). Suppose there is a second stage where instead of assuming that one half of the cars are high quality buyers update their expectation based on the proportion of high and low quality cars sold in the answer to part b. What will the equilibrium price and quantity in each market be in this second stage? What will happen in the long run (in words)? Show less
What will the equilibrium price and quantity in each market be in this second stage?
