Car Depreciation A common complaint is that a new car will depreciate by 25% as soon as the new owner drives it off the lot. This information comes from resale price data from cars sold just months after the initial purchase. How does adverse selection imply that most cars depreciate much less?
Most new cars are not sold within a few months after purchase. And for those that are, this quick of a resale was usually not intended at the time of the purchase. For these cars, the initial buyer learned something about this car that made them reduce their assessment of the car's value. For example, they may have learned when they left the windows down during a rainstorm or backed up into a lake, they were reducing the value the car. Buyers at the time of resale, are suspicious that a car resold so quickly must have been treated poorly. The value of other cars of the same age that are not offered for resale have likely been treated well and have not decreased in value nearly as much.
You might also like to view...
Answer the following statement(s) true (T) or false (F)
1. Producers’ decisions are modeled through the demand function, and consumers’ decisions are captured by the supply function. 2. Two characteristics of a private good are rivalry in consumption and excludability. 3. A change in price results in a shift in the demand curve. 4. The demand price represents the consumer’s willingness to pay for the good. 5. Conventionally, the graph of demand uses the inverse form of the demand function, which isP = f(QD).
Given the exit rule, where does a firm's long-run supply curve derive from? It is the section of the:
A. ATC curve to the right of its minimum. B. MC curve that lies above the ATC curve. C. MC curve that lies above the AVC curve. D. AVC curve to the right of its minimum.
Suppose that investment is not very responsive to interest rates, so that a sizable increase in interest rates has only a minor effect on investment. In this case, monetary policy would have:
A. a massive effect on output. B. no effect on output. C. a modest effect on output. D. a substantial effect on output.
Which of the following illustrates that at any point in time, a fully employed economy must sacrifice some amount of one good to obtain more of another good?
a. A budget line b. Macroeconomics c. Marginal analysis d. A production possibilities table e. A budget constraint