The Lemons Problem Is That When There Are Hidden Characteristics

question 79

Multiple Choice

The lemons problem is that when there are hidden characteristics known only to the seller of a used car,

• A)the ratio of lemons to high-quality cars is likely to be high
• B)the ratio of lemons to high-quality cars is likely to be low
• C)good used cars will sell for more than their market value
• D)no lemons will be offered on the market
• E)the price of lemons will be below their market value

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Definitions:

Voting Shares

Shares that give the shareholder the right to vote on company matters.

GAAP

Generally Accepted Accounting Principles, a framework of accounting standards, principles, and procedures.

Significant Influence

The power to participate in the financial and operating policy decisions of an investee but not control those policies.

Ownership Percentage

This refers to the fraction or percentage of a company or asset that is owned by a particular shareholder or investor.