Some people have argued that the lemons problem can be ameliorated by way of government regulation. Suppose that the government passes a law that states that the owner of a lemon is entitled to trade in his car for another new car ("lemon laws" exist in many states, such as New Jersey). Argue in some detail that if the only kinds of cars were lemons and good cars (which are being sold because their owners' circumstances changed), the problem would indeed be solved.
How would your analysis change if there are more than two quality levelslemons, intermediates, and good-quality cars? Explain your answer in detail.