Suppose That There Are Two Types of Cars, Good and Bad

question 105

Multiple Choice

Suppose that there are two types of cars, good and bad. The qualities of cars are not observable but are known to the sellers. Risk-neutral buyers and sellers have their own valuation of these two types of cars as follows: Suppose that both buyers and sellers observe the quality. What happens?

• A) Both good and bad cars are traded.
• B) Only good cars are traded.
• C) Only bad cars are traded.
• D) Neither good nor bad cars are traded.

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Definitions:

Not-for-Profit Entity

An organization whose primary goal is not to make a profit but to pursue a mission of public or social benefit.

Recipient

An individual or organization that receives something from another entity, often within the context of transactions or awards.

Charitable Entity

An organization established for philanthropic rather than profit-making purposes, benefiting the public or a particular social cause.

Cash Contributions

Monetary gifts made by individuals or organizations to entities such as companies, nonprofits, or trusts, often for specific purposes or projects.