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:

Operating Income

The profit realized from a business's operational activities, calculated before interest and taxes.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a company can increase profit by increasing sales.

Variable Costs

Charges that shift in alignment with the volume of production or service tasks.

Operating Income

Earnings before interest and taxes (EBIT), a measure of a company's profit generated from its core operations excluding the effects of financing and taxes.