Suppose That There Are Only Two Types of Used Cars

question 127

Multiple Choice

Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000, and lemons are worth $4,000. If the market is such that only lemons are sold, then used cars are

• A) experience goods and the used car market has effective signals.
• B) experience goods and the used car market lacks effective signals.
• C) not experience goods and the used car market has effective signals.
• D) not experience goods and the used car market lacks effective signals.

---

Definitions:

Revenues

Revenues represent the income earned by a business from its normal operations, such as sales of goods or services, before any expenses are deducted.

Assets

Resources owned or controlled by a business, expected to bring future economic benefits.

Expenses

Costs incurred in the process of earning revenue, including operational expenses like rent, utilities, and payroll.

Stockholders' Equity

Shareholders' Equity reflects the stake of owners in a company, determined by subtracting the firm's total liabilities from its total assets.