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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Which of the statements below best explains how the use of money in an economy adds to the wealth of the society using it? Money creates wealth
A) because it is capital. B) by earning interest. C) by making specialization less costly. D) insofar as it is invested rather than consumed.
Forms of commitments include
A) warranties. B) guarantees. C) advertising expenditures. D) all of these choices are forms of commitments.