Why Is the Study of Asymmetric Information Associated with the Market

question 120

Multiple Choice

Why is the study of asymmetric information associated with the market for "lemons"?

• A)Sellers of citrus fruit-lemons,oranges,grapefruit-know the difference between bad fruit and good fruit; buyers do not have this information.
• B)Because there is little advertising in the market for lemons,buyers have difficulty determining the quality of lemons before they are purchased.
• C)Potential buyers of used cars have difficulty separating good used cars from bad used cars; bad used cars are often referred to as "lemons."
• D)Most sellers of used cars have less information about their cars than the dealers who buy them; used cars are often referred to as "lemons."

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Definitions:

Advertising

A method used by businesses to promote their products or services through various media to attract new customers or retain current ones.

Plantwide Overhead Rate

A single overhead absorption rate used throughout a manufacturing facility to allocate overhead costs to products.

Activity-based Costing

A costing method that identifies the activities in an organization and assigns the cost of each activity to all products and services according to the actual consumption by each.

Overhead Costs

Expenses related to the operation of a business that cannot be directly attributed to a specific product or service, such as rent, utilities, and administration expenses.