When a Buyer Does Not Observe the Quality, Based on the Following

question 61

Multiple Choice

When a buyer does not observe the quality, based on the following table, what is the highest price she will offer for a used car if she ignores adverse selection?

• A) $10,000
• B) $5,000
• C) $7,500
• D) $7,000

---

Definitions:

Relative Position

The placement or rank of something in relation to others based on a specific criteria.

Vertical Analysis

A technique for evaluating financial statement data that expresses each item within a financial statement as a percentage of a base amount.

Net Income

The net income of a business following the subtraction of all costs and taxes from its revenue.

Net Sales

The revenue a company earns from goods sold or services provided after returns, allowances for damaged goods, and discounts are subtracted.