If Buyers Cannot Distinguish Between "Lemons" and "Cherries" in the Used

question 46

Multiple Choice

If buyers cannot distinguish between "lemons" and "cherries" in the used car market but sellers can, the price buyers are willing to pay for used cars will be:

• A) high enough to guarantee that at least 50 percent of the used cars offered for sale are "cherries."
• B) so low that sellers with "cherries" will be unwilling to sell.
• C) so low that sellers with "lemons" will be unwilling to sell.
• D) equal to zero since no one will take the chance of purchasing a "lemon" even if the value of a car known to be a lemon is greater than zero.

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Definitions:

Expenses

The outflow of money to pay for goods, services, or assets, or the costs incurred in the operation of a business.

Dividends

Capital returned to shareholders by a company, often representing a share of the company's profits.

Ending Balance

The amount of money in an account at the end of a period after all transactions have been accounted for.

Adjustments Columns

Columns in accounting records used to make necessary modifications to account balances before preparing the final financial statements.