The "Lemon's" argument helps to explain why
A)physical depreciation is the only reason for the sharp price differential between new and used cars.
B)physical depreciation is an insufficient reason for the sharp price differential between new and used cars.
C)used cars fail to satisfy consumer demands for transportation.
D)new and used cars sell for more than their intrinsic value would suggest.

Question

Quizplus · Accepted Answer

The "Lemon's" argument suggests that physical depreciation is not the only factor contributing to the sharp price differential between new and used cars. As a result, option A can be ruled out. Instead, it argues that the presence of low-quality used cars (or "lemons") in the market, which are often sold at cheaper prices, reduces the overall demand for used cars and leads to a wider price gap between new and used cars. Thus, option B is the best choice. Option C is not relevant to the "Lemon's" argument, which is focused on price differentials rather than consumer demand. Option D is also not directly related to the argument made by the "Lemon's" model.

The "Lemon's" Argument Helps to Explain Why