The Lemons Model Implies That,because Most Used Cars Offered for Sale

question 129

Multiple Choice

The lemons model implies that,because most used cars offered for sale are of less-than-average quality,then

• A) those with a better-than-average quality car have a greater incentive to sell.
• B) the amount of a seller's overstatement of the car's condition declines.
• C) those with a better-than-average quality car have an incentive not to sell.
• D) the extent of buyers' understatement of their reservation price declines.
• E) those with a better-than-average quality car have smaller incentive to keep their car.

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Definitions:

Binding Price Ceilings

A legally imposed maximum price on goods or services that is below the equilibrium price, causing shortages and rationing.

Illegal Activity

Illegal activity encompasses actions that violate laws, including crimes such as theft, fraud, and assault, forbidden by societal legal frameworks.

Wasted Resources

A form of inefficiency in which people expend money, effort, and time to cope with the shortages caused by a price ceiling.

Surplus

The amount by which the supply of a product exceeds its demand, often leading to lower prices.