A Bumper-To-Bumper Warranty on a Used Car Is a Signaling

question 106

Multiple Choice

A bumper-to-bumper warranty on a used car is a signaling device that:

• A) identifies a high-quality car as a high-quality car, because putting such a warranty on a low-quality car would be prohibitively costly.
• B) disguises a low-quality car as a high-quality car, and thus makes it easier to sell.
• C) is necessary in order to sell a low-quality car at all. Without it no one would risk buying the car.
• D) isn't necessary if there is a mix of high-quality and low-quality cars in the market.
• E) helps sellers determine whether the buyer is truly looking for a high-quality car.

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