Why Is the Study of Asymmetric Information Associated with the Market

question 120

Multiple Choice

Why is the study of asymmetric information associated with the market for "lemons"?

• A)Sellers of citrus fruit-lemons,oranges,grapefruit-know the difference between bad fruit and good fruit; buyers do not have this information.
• B)Because there is little advertising in the market for lemons,buyers have difficulty determining the quality of lemons before they are purchased.
• C)Potential buyers of used cars have difficulty separating good used cars from bad used cars; bad used cars are often referred to as "lemons."
• D)Most sellers of used cars have less information about their cars than the dealers who buy them; used cars are often referred to as "lemons."

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Definitions:

Residual Value

The estimated value of an asset at the end of its useful life, often considered in leasing and depreciation calculations.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that guide how particular types of transactions and other events should be reported in financial statements.

GAAP

A standard collection of rules and standards for accounting that are widely used across the United States.

Asset Impairments

The reduction in the book value of an asset when its fair market value falls below its carrying amount on the balance sheet.