Which of the following statements are implications of the lemons problem in the used car market?
(i) many people avoid buying vehicles in this market
(ii) used cars have a market value much less than that of new cars
(iii) buyers are just as aware of a used car's defects as sellers
A) (I) any
B) (i) and (ii)
C) (i) and (iii)
D) (ii) and (iii)

Question

Quizplus · Accepted Answer

The lemons problem in the used car market is the issue of asymmetric information, where the seller knows more about the quality of the car than the buyer. This leads to a market where buyers are hesitant to purchase used cars, resulting in lower market values for used cars compared to new cars. Therefore, (i) and (ii) are implications of the lemons problem. However, (iii) is not true since buyers may not be aware of all of a used car's defects, which is why the lemons problem exists in the first place.

Which of the Following Statements Are Implications of the Lemons