Question : 11) Suppose that there only two types of used cars, : 1241104

11) Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000 and lemons are worth $4,000. Without effective signals such as warranties, the owners of peaches cannot sell their cars for $10,000 because the

A) owners of peaches cannot convince buyers that their cars are worth $10,000.

B) buyers cannot convince owners of peaches to sell their cars for $10,000.

C) owners of lemons cannot convince buyers that their cars are worth more than $4,000.

D) buyers cannot convince owners of lemons to sell their cars for more than $4,000.

E) buyers cannot convince owners of lemons to sell their cars for $4,000.

12) Suppose that there are only two types of used cars, peaches and lemons. Peaches are worth $10,000, and lemons are worth $6,000. Three fourths of all used cars are peaches, and one fourth are lemons. In a market with no signals, for instance, a market without warranties, the average value of cars actually sold will be

A) $6,000.

B) $7,000.

C) $7,500.

D) $9,000.

E) $10,000.

13) Suppose there are only two kinds of cars in the market for used cars: lemons and good cars. A lemon is worth $1,000 both to its current owner and to anyone who buys it. A good car is worth $8,000 to its current and potential owners. Buyers can’t tell whether a car is a lemon until after they have bought the car, and there is no warranty. What is the equilibrium price of a used car?

A) $8,000

B) $1,000

C) $4,500

D) $9,000

E) The equilibrium price depends on how many lemons and how many good cars are traded.

14) Signals are believable when the cost of sending a ________ is known to be ________.

A) false signal; low

B) false signal; high

C) true signal; low

D) true or false signal; low

E) true signal; high

15) Your grade point average acts as ________ to potential employers.

A) a signal

B) private information

C) a reservation price

D) a guarantee

E) insurance

16) One of the ways the market for used cars copes with the problems associated with private information is through the offering of

A) leases.

B) warranties.

C) low interest rates.

D) high prices for high-quality used cars.

E) low prices.

17) Used car buyers believe a car is good quality when the seller signals the car’s quality by offering a warranty because

A) car sellers would never lie.

B) car buyers are gullible.

C) signals lead to efficient pooling equilibriums.

D) the signal cannot be false.

E) a false signal can be costly to the seller.

18) Used car buyers believe a car is good quality when the seller signals the car’s quality by offering a warranty because

A) a warranty on a lemon is costly to the seller.

B) warranties are only offered on lemons.

C) the signal cannot be false.

D) adverse selection means that warranties will not be used as a signal.

E) a false signal has no effect on the seller.

19) Warranties in the used car market ________ the problem of private information thereby causing the price of good and bad used cars to ________.

A) reduce; be the same

B) reduce; differ

C) magnify; be the same

D) magnify; differ

E) None of the above answers is correct because warranties have nothing to do with private information.

20) In the used car market with no warranties, the market for lemons (poor quality used cars) is ________ and the market for good cars is ________.

A) efficient; efficient

B) inefficient because of oversupply; inefficient because of undersupply

C) inefficient because of oversupply; inefficient because of oversupply

D) efficient; inefficient because of undersupply

E) inefficient because of oversupply; efficient