In the used car market with no warranties, the market for lemons (poor quality u
ID: 1107861 • Letter: I
Question
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.)inefficient because of oversupply; efficient
inefficient because of oversupply; inefficient because of undersupply
efficient; inefficient because of undersupply
inefficient because of oversupply; inefficient because of oversupply
efficient; efficient
A.)inefficient because of oversupply; efficient
B.)inefficient because of oversupply; inefficient because of undersupply
C.)efficient; inefficient because of undersupply
D.)inefficient because of oversupply; inefficient because of oversupply
E.)efficient; efficient
Explanation / Answer
Used car market has more information about the type of car with the sellers than with the buyers. This suggests that buyers will always try to place an expected price which might not be acceptable to the good car sellers but will be willingly accepted by the bad car sellers ultimately driving the good car sellers are out of the market. In this sense there is most of the time in efficiency due to over supply of lemons and inefficiency due to under supply of good cars
Correct choice is option B.