Suppose you see a 2006 Scion xB Sport Wagon advertised in the local newspaper for $8,500. If you knew the car was reliable, you would be willing to pay $10,000 for it
If you knew the car was unreliable, you would only be willing to pay $5,500 for it. Under what circumstances should you buy the car?
Because of the lemons problem you should buy the car only if the advertisement is placed by a car dealer with a good reputation or by an individual you know well enough to trust, if you can cheaply determine that it isn't a lemon (for example, by an inspection), or if you'll receive a solid warranty against defects.
You might also like to view...
Loss aversion can explain why very little ________ actually takes place in the securities market
A) short selling B) bargaining C) bartering D) negotiating
A drop in six-month LIBOR is good news to __________ in a swap contract
A) the fixed-rate payer B) the floating-rate payer C) both payers D) neither payer