There Are Two Types of Used Cars, High Quality and Low

question 17

Multiple Choice

There are two types of used cars, high quality and low quality.Buyers cannot distinguish the two types until after they have purchased them.Owners of high-quality cars will sell them if the price is $2,000 or higher.Owners of low-quality cars will sell them if the price is $1,000 or higher.Buyers value a high-quality used car at $3,466 and a low-quality used car at $1,200.Suppose that 30% of used cars are of high quality and 70% of used cars are of low quality.In equilibrium,

• A)all used cars will be sold.
• B)only low-quality used cars will be sold.
• C)no used cars will be sold.
• D)only high-quality used cars will be sold.
• E)high-quality used cars will sell for a uniformly higher price than low-quality used cars.

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Definitions:

Epinephrine

A hormone also known as adrenaline, secreted by the adrenal glands, increasing heart rate and blood pressure during stress.

Arousal

A physiological and psychological state of being awake or reactive to stimuli, often involving heightened physical activity and alertness.

Leptin

A hormone produced by adipose cells that helps to regulate energy balance by inhibiting hunger, thereby helping to regulate body weight.

Two-Factor Theory

A theory that asserts emotion arises from physiological arousal followed by a cognitive label of that arousal, proposed by Stanley Schachter and Jerome E. Singer.