In the Used Car Market,adverse Selection Creates the Lemon Problem

question 75

Multiple Choice

In the used car market,adverse selection creates the lemon problem when

• A) sellers cannot judge buyers' creditworthiness.
• B) buyers believe that sellers will offer only high-priced "good" used cars for sale.
• C) buyers believe that sellers will sell only lemons.
• D) sellers offer warranties on all used cars.
• E) None of the above answers is correct because it is moral hazard that creates the lemon problem.

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Definitions:

Us Versus Them

A psychological and social phenomenon that divides populations into opposing groups, often leading to conflict and discrimination.

Argument From Analogy

A method of reasoning that suggests if two things are similar in some ways, they are likely similar in other ways as well.

Mill

A facility for processing raw materials; historically refers to factories for grinding grain into flour.

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Complex psychological states that involve three distinct components: a subjective experience, a physiological response, and a behavioral or expressive response.