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.

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Definitions:

Valid Contract

An agreement between parties that meets all legal requirements and is enforceable by law.

Minor

A minor is a person who is under the legal age of majority, typically under 18 years old in many jurisdictions, and is restricted from certain legal rights and responsibilities.

Legally Bound

Obligated by law to act in accordance with an agreement.

Restraints Of Trade

Legal limitations placed on business practices and agreements that might unfairly limit competition or control prices.