How do markets for cars use warranties to cope with private ...

[Alainaaa8]

How do markets for cars use warranties to cope with private information?
 
  What will be an ideal response?

Question 2

In 1995 ________, which was established in 1948, was replaced by ________.
 
  A) NAFTA; the Smoot-Hawley Tariff B) the WTO; NAFTA
  C) the GATT; the WTO D) the Smoot-Hawley Tariff; the GATT

[kjo;oj]

Answer to Question 1

Warranties serve to limit the adverse selection and moral hazard problems in the market for cars. Essentially, warranties (and guarantees in general) are signals provided to potential buyers that the product under consideration has been examined by experts and is a high-quality item. Without the existence of these signals, the lemon problem, whereby only low-quality products are offered for sale, may occur because buyers realize that all sellers claim that they are selling high-quality goods but that adverse selection implies that the goods sold are of low quality.

Answer to Question 2

C

[Alainaaa8]

Thank you

[kjo;oj]

Happy to help you