Suppose That in a Market for Used Cars,there Are Good

question 118

Multiple Choice

Suppose that in a market for used cars,there are good used cars and bad used cars (lemons) .Consumers are willing to pay as much as $6,000 for a good used car but only $1,000 for a lemon.Sellers of good used cars value their cars at $5,000 each and sellers of lemons value their cars at $800 each.Buyers cannot tell if a used car is reliable or is a lemon.Based on this information,what is the likely outcome in the market for used cars?

• A)Both good used cars and lemons will sell for $4,500 each.
• B)Only lemons will sell,for $800 each.
• C)Both good used cars and lemons will sell for $1,000 each.
• D)Most used cars offered for sale will be lemons.

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Definitions:

Reversing Entries

Entries executed at the onset of an accounting cycle to annul or reverse the adjusting records that were established at the end of the last period.

Journal Entries

Recordings in accounting journals of the financial transactions made by a business, showing debits and credits for each transaction.

Salary Payroll

The total amount paid by an employer to its employees as salaries over a specified period.

Classified Balance Sheet

A balance sheet that groups assets, liabilities, and equity into subcategories for clearer understanding.