The Major Prediction of the Lemons Model Is That

question 57

Multiple Choice

The major prediction of the lemons model is that

• A) the presence of asymmetric information reduces the average quality of goods for sale.
• B) most used cars are worthless.
• C) if one sells a used car in good condition,one will not be penalized.
• D) if one buys a used car,one can expect it to be in good condition.
• E) the presence of asymmetric information increases the average quality of goods for sale.

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Definitions:

Standard Cost

A predetermined cost of manufacturing a single unit or a number of units of a product, calculated for managerial accounting purposes.

Materials Quantity Variance

A measure of the difference between the actual quantity of materials used in production and the expected quantity, multiplied by the standard cost per unit.

Materials Price Variance

The deviation from the standard to the real price of materials, calculated by multiplying this difference by the amount of materials bought.

Variable Overhead

Overhead costs that vary directly with the level of production or activity, such as electricity or material handling costs.