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

question 47

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 are correct because it is moral hazard that creates the lemon problem.

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Definitions:

Bowman's Capsule

A cup-like sac at the beginning of the tubular component of a nephron in the kidney, which encases the glomerulus and is involved in the filtration of blood.

Ammonia

A colorless gas with a penetrating odor, NH3, which is a byproduct of nitrogenous waste in organisms and used in various industrial processes.

Urea

Nitrogen-containing waste compound derived from ammonia; water is required to excrete it.

Malpighian Tubes

The excretory system of certain arthropods, like insects and spiders, used for removing wastes and maintaining osmotic balance.