One Effect of the Lemons Problem in the Used Car

question 147

Multiple Choice

One effect of the lemons problem in the used car market is that

• A)the market is efficient
• B)without reliable information, lemons become increasingly common
• C)no good cars are offered on the market
• D)no lemons are offered on the market
• E)good cars sell at more than their market value

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Definitions:

Benefits Principle

The idea that people should pay taxes based on the benefits they receive from government services

Taxes

Obligatory charges imposed by authorities on the earnings of employees and the profits of businesses, or applied to the price of various commodities, services, and financial activities.

Total Surplus

The sum of consumer surplus and producer surplus in a market, representing the total benefits to society.

Deadweight Loss

A loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved, often due to market failure, taxes, or subsidies.