How do markets for cars use warranties to cope with private information?
What will be an ideal response?
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.
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Signaling is important because: a. it increases social benefits associated with public goods
b. it decreases external costs associated with externalities. c. it reduces information costs associated with asymmetric information. d. all of the above
Fiscal and monetary policies are most effective in reducing inflation when the aggregate
A. Supply curve is horizontal. B. Supply curve is upward-sloping but not vertical. C. Supply curve is vertical. D. Demand curve is vertical.
Which one of the following is the largest component of the money supply (M1) in the United States?
A. checkable deposits B. gold certificates C. credit cards and traveler's checks D. Federal Reserve notes
The demand curve that a monopolist faces is:
A. the market demand curve. B. the same as the demand curve that faces a perfectly competitive firm. C. not affected by changes in the prices of other goods. D. generally flatter than the demand curve that faces a perfectly competitive firm.