Warranties on products _____ asymmetric information, but they do _____ the lemons problem.
A) reduce; not reduce
B) do not eliminate; reduce
C) increase; not reduce
D) do eliminate; increase

Question

Quizplus · Accepted Answer

Warranties on products do not completely eliminate asymmetric information, but they reduce the lemons problem to a certain extent. This is because warranties signal to consumers that the seller is confident about the quality of the product and therefore is willing to invest in repairing or replacing it if something goes wrong. However, warranties cannot completely eliminate the risk of buying a low-quality product, as some sellers may offer warranties even if they know the product is likely to fail. Additionally, warranties may not cover all types of defects or damages, which could still lead to the buyer getting a lemon. Therefore, while warranties may reduce the lemons problem, they cannot completely solve it.

Warranties on Products _____ Asymmetric Information, but They Do _____

Warranties on Products _ Asymmetric Information, but They Do _