quantity. In a market with imperfect information, many buyers may assume that the lower price implies low-

quality cars. As a result, the lower price may not attract more customers. Conversely, a dealer who raises prices

may find that customers assume that the higher price means that cars are of higher quality. As a result of

raising prices, the dealer might sell more cars. (Whether or not consumers always behave rationally, as an

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16.1 • The Problem of Imperfect Information and Asymmetric Information 391

economist would see it, is the subject of the following Clear It Up feature.)

The idea that higher prices might cause a greater quantity demanded and that lower prices might cause a

lower quantity demanded runs exactly counter to the basic model of demand and supply (as we outlined in the

Demand and Supply chapter). These contrary effects, however, will reach natural limits. At some point, if the
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