Empirical Analysis with Respect to the Used Car Market Suggests

question 69

Multiple Choice

Empirical analysis with respect to the used car market suggests that:

• A)the "lemons" model holds and in the end bad cars totally drive out good cars from the market.
• B)the lack of information among consumers drives up the price of bad cars.
• C)consumers are partially informed about the quality of used cars making the "lemons" model only partly valid.
• D)consumers do not try to gather information to any appreciable degree and depend on the recommendations made by the sellers.

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Definitions:

Useful Life

The estimated time period that an asset is expected to be operational and economically useful to the owner.

Net Present Value

A method used in capital budgeting to evaluate the profitability of an investment or project, calculated by discounting future cash flows to their present value and subtracting the initial investment cost.

Working Capital

The difference between a company's current assets and current liabilities, indicating its short-term liquidity.

Investment Project

A project undertaken by a company involving significant capital expenditure with the expectation of generating future profits.