There Is an Adverse Selection Problem in the Market for Used

question 124

Multiple Choice

There is an adverse selection problem in the market for used cars because:

• A) Owners of poor-quality cars have a strong incentive to sell their cars, while owners of high-quality used cars have more incentive to keep their cars
• B) Owners of high-quality cars will have a strong incentive to sell their cars to obtain the higher prices, while owners of poor-quality cars will have more incentive to keep theirs
• C) Most people prefer new cars, but the high prices for new cars force most of them to buy used cars
• D) Government actions to pass "lemon" laws have reduced information on used cars

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Definitions:

Category Extension

The strategy of using an established brand's name to enter a new product category or market segment, leveraging the brand's existing reputation and customer base.

Category Extension

The practice of expanding a brand or product line into new categories or markets, leveraging existing brand equity to introduce new offerings.

Co-branding

A partnership between two or more brands to create a product or service that leverages the strength of each brand's identity.