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(Scenario: Used-Car Market) Use Scenario: Used-Car Market.Adverse selection in this used-car market occurs because of: Scenario: Used-Car Market
In the used-car market,cars of poor quality are called lemons,while cars of good quality are called plums.Suppose that the probability of obtaining a lemon is 60% and the probability of obtaining a plum is 40%.Also,assume that a plum is worth $15,000 and a lemon is worth $3,000.
Infant Industry
A new industry that is in its early stages of development and may be protected or supported by government policies.
Protection
Economic policies and actions, such as tariffs and quotas, taken by a government to shield domestic industries from foreign competition.
Compete
The act of striving against others for the purpose of achieving goals such as winning a market share, receiving recognition, or obtaining a scarce resource.
Tariff
A tax imposed by a government on goods and services imported from other countries, intended to raise revenue or protect domestic industries.
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