In the 1980s, it became increasingly common for consumers to sign two-year leases rather than buying the cars outright. As these leases expired, the supply of used cars expanded considerably. How would the addition of this large volume of off-lease cars influence the possibility of a lemons problem on the used-car market?

Question

a. The lemons problem would be alleviated because off-lease cars tend to be put up for sale automatically, rather than being offered only when the seller obtains private information about the car's poor quality.
b. The lemons problem would be worsened because used-car prices would fall in response to the glut of off-lease cars.
c. The lemons problem would be worsened because, with more used cars, searching for the appropriate car would become much more difficult for buyers.
d. Very little; the existence of off-lease cars has little to do with the lemons problem.

Answer 1

a