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Author Question: Explain why bad cars drive out the good ones in the market for used cars. What will be an ideal ... (Read 209 times)

Caiter2013

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on: Jun 29, 2018
Explain why bad cars drive out the good ones in the market for used cars.
 
  What will be an ideal response?

Question 2

A ________ is owned by its stockholders.
 
  A) sole proprietorship B) partnership
  C) corporation D) All of the above are correct.


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marict

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Reply #1 on: Jun 29, 2018
Answer to Question 1

Suppose there are two kinds of cars available in the used car market: high-quality cars (peaches) and low-quality cars (lemons). All cars look exactly the same but there is asymmetric information; only the seller actually knows whether he has a lemon or a peach. If both peaches and lemons are available, buyers would not be willing to offer a very high price for a used car because there is a chance they are buying a lemon. The owners of peaches might be unwilling to sell at this price and so in equilibrium only lemons are bought and sold.

Answer to Question 2

C


Caiter2013

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Reply 2 on: Jun 29, 2018
YES! Correct, THANKS for helping me on my review

cdmart10

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Reply 3 on: Yesterday
Gracias!

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