The "lemons problem" in the used car market arises from A. the difficulty buyers have in distinguishing good cars from lemons. B. the difficulty U. S. producers have in making reliable cars. C. the tendency of buyers of used cars to pay for them with bad checks. D. the reluctance of many car dealers to handle used cars.

Question

Emelia Lang

Business

16 November, 01:15

The "lemons problem" in the used car market arises from A. the difficulty buyers have in distinguishing good cars from lemons. B. the difficulty U. S. producers have in making reliable cars. C. the tendency of buyers of used cars to pay for them with bad checks. D. the reluctance of many car dealers to handle used cars.

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Answers (1)

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Daniela Good · Answer 1

A. the difficulty buyers have in distinguishing good cars from lemons

Explanation:

The "lemon" problem corresponds to buyers decision making problem while purchasing a used car owing to asymmetric information which prevails in the used car market.

The word "Lemon" here denotes used and defective cars. So the problem relates to the difficulty in ascertaining the true value of a used car by the buyer, since both buyers and sellers do not possess the right amount of information required to make a fair decision regarding the transaction.

Since the buyers are devoid of proper information regarding the fair price, they usually are willing to pay only between their own bargained price and the maximum value the seller claims.

The problem is not only associated with buyers in used car markets but also in financial areas such as buying an insurance.