One Consequence of the Asymmetric-Information Problem in the Used Car

question 219

Multiple Choice

One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of

• A) new cars declining in quality because of competition from used cars.
• B) a declining quality of used cars for sale in the market.
• C) a rising quality of used cars for sale in the market.
• D) used-car buyers willing to pay higher prices in the market.

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Definitions:

Compounded Monthly

Interest calculation method where interest is added to the principal each month, increasing the amount on which subsequent interest is calculated.

RRSP

A Registered Retirement Savings Plan that allows individuals in Canada to save for retirement on a tax-deferred basis.

Annuity Payment

A fixed amount of money paid to someone each period, typically for the rest of their life or for a fixed number of years, as part of an annuity contract.

Ordinary Annuity

A series of equal payments made at regular intervals, with the interest compounding period being the same as the payment period.