The "Lemons Model" Predicts Quality Deterioration in the Used-Car Market

question 9

Multiple Choice

The "lemons model" predicts quality deterioration in the used-car market because

• A)used cars require increasing maintenance.
• B)suppliers and demanders have different information about cars' quality.
• C)used cars are generally of a lower quality than new cars.
• D)people will usually buy new cars if they are available.

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Definitions:

Unit Variable Cost

The cost associated with producing one additional unit of a product, which includes costs that vary directly with the production volume, such as raw materials and labor.

Fixed Cost

Expenses that do not change with the level of goods or services produced by a business, such as rent or salaries.

Target Profit

The intended financial gain that a business plans to achieve from its operations or specific ventures.

Customary Pricing

A pricing strategy based on the standard or most common price point for products or services in a particular market or industry.