There Are Two Types of Used Cars, High Quality and Low

question 24

Multiple Choice

There are two types of used cars, high quality and low quality.Buyers cannot distinguish the two types until after they have purchased them.Owners of high-quality cars will sell them if the price is $2,000 or higher.Owners of low-quality cars will sell them if the price is $1,000 or higher.Buyers value a high-quality used car at $4,266 and a low-quality used car at $1,200.Suppose that 30% of used cars are of high quality and 70% of used cars are of low quality.In equilibrium,

• A)only high-quality used cars will be sold.
• B)only low-quality used cars will be sold.
• C)all used cars will be sold.
• D)no used cars will be sold.
• E)high-quality used cars will sell for a uniformly higher price than low-quality used cars.

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Definitions:

Residual Value

The estimated salvage value of an asset at the end of its useful life, representing what it could be sold for or would be worth at that future time.

Accumulated Depletion

The total amount of natural resource extraction charged as an expense over time to depreciate the asset's value.

Balance Sheet

An overview presenting a business's assets, liabilities, and the equity belonging to shareholders, captured at a particular instant.

Mining Rights

Legal permissions granted to extract minerals, oil, or gas from the land, potentially involving leasing or ownership arrangements.