In the 1980s,it Became Increasingly Common for Consumers to Sign

question 16

Multiple Choice

In the 1980s,it became increasingly common for consumers to sign two-year leases rather than buying the cars outright.As these leases expired,the supply of used cars expanded considerably.How would the addition of this large volume of off-lease cars influence the possibility of a lemons problem on the used-car market?

• A)The lemons problem would be alleviated because off-lease cars tend to be put up for sale automatically,rather than being offered only when the seller obtains private information about the car's poor quality.
• B)The lemons problem would be worsened because used-car prices would fall in response to the glut of off-lease cars.
• C)The lemons problem would be worsened because,with more used cars,searching for the appropriate car would become much more difficult for buyers.
• D)Very little;the existence of off-lease cars has little to do with the lemons problem.

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Definitions:

Bid

An offer of a price by a buyer to a seller for goods, services, or financial assets.

Revenue

The income generated from normal business operations and includes discounts and deductions for returned merchandise.

Probability Distribution

A statistical function that describes all the possible values and likelihoods that a random variable can take within a given range.

Reservation Price

The highest price a person is prepared to spend on a product or service.