Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer belie
Suppose the equilibrium price for good quality used cars is $20,000. And the equilibrium price for poor quality used cars is $10,000. Assume a potential used car buyer has imperfect information as to the condition of any given used car. Assume this potential buyer belie
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose the
How does the informational imbalance result in market failure?
a. Only good quality cars are sold, hence the market under-provides used cars.
b. Both poor and good quality cars are sold, hence the market over-provides used cars.
c. Only poor quality cars are sold, hence the market under-provides used cars.
d. Both poor and good quality cars are sold, hence the market efficiently provides used cars.
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