Use the Following to Answer Questions

question 32

Multiple Choice

Use the following to answer questions :
Scenario: Used-Car Market
In the used-car market,cars of poor quality are called lemons,whereas cars of good quality are called plums.Suppose that the probability of obtaining a lemon is 60% and the probability of obtaining a plum is 40%.Also,assume that a plum is worth $15 000 and a lemon is worth $3 000.
-(Scenario: Used-Car Market) Use Scenario: Used-Car Market.Adverse selection in this used-car market occurs because of:

• A) asymmetric information.
• B) risk-loving behaviour.
• C) moral hazard.
• D) diversification.

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Definitions:

Line Chart

A type of chart which displays information as a series of data points connected by straight line segments, often used to visualize trends over time.

Pie Chart

A type of graph in which a circle is divided into sectors that each represent a proportion of the whole.

Administrative Overhead

Expenses related to the general operation of a business that are not directly linked to the production or selling of goods and services.

Explode

In the context of data analysis, to break down information into more detailed parts for in-depth examination.