A Warranty on a Used Car Is a Credible Signal

question 65

Multiple Choice

A warranty on a used car is a credible signal of quality because:

• A)many used cars come with warranties.
• B)sellers who offer warranties are more honest than most people.
• C)it would cost the seller too much to honor a warranty on a low-quality car.
• D)it indicates the car is of average quality.

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Definitions:

Product Diversity

The variance in products and services offered by companies or available in a market, aiming to cater to different consumer preferences.

Existing Firms

Companies or businesses that are currently operating in the market, as opposed to new startups or entities planning to enter the market.

Economic Losses

Economic Losses indicate a situation where the total cost of a business or activity exceeds the total revenue generated, resulting in a net loss.

Long-run Equilibrium

A state in economics where all factors of production and economic agents are fully adjusted to the conditions, and no further tendency for change exists.