Suppose Joe Has a Two-Year Old Honda Civic That's in Excellent

question 44

Multiple Choice

Suppose Joe has a two-year old Honda Civic that's in excellent condition and that he would be willing to sell for $13,000. Lauren, who is risk-neutral, is considering whether to buy Joe's car. She's willing to pay $14,000 for a two-year Honda Civic that's in excellent condition and only $10,000 for one that's not in excellent condition. Lauren cannot tell whether Joe's car is in excellent condition. She believes that only 20 percent of two-year old Hondas for sale in the market are in excellent condition and that the other 80 percent are not in excellent condition. If Joe offers a warranty in which he makes a legally binding commitment to pay for any major repairs the car needs in the next 18 months, then this ________ serve a credible signal because ________.

• A)will; it is more costly for people with low-quality cars to offer such a warranty
• B)will; people who own cars that are in excellent condition are usually honest
• C)will not; it is less costly for people with low-quality cars to offer such a warranty
• D)will not; people who sell used cars are rarely honest

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Definitions:

Population Size

The total number of individuals within a defined area at a given time, important in understanding ecology and evolutionary biology.

Increase Or Decrease

Terms that indicate a change in magnitude, quantity, or degree, either going up (increase) or going down (decrease).

Dispersal Patterns

The way in which organisms move or spread from their point of origin to other areas, affecting population dynamics and ecosystem structure.

Clumped Dispersion

The spatial distribution pattern of a population in which individuals are more concentrated in specific parts of the habitat. Also called aggregated distribution and patchiness. Compare with random dispersion and uniform dispersion.