The "lemons problem" is overcome in the used car market by
A)strict government regulation of private deals between individual buyers and sellers of used cars.
B)most used cars selling for well below their true values.
C)"lemon insurance" policies being offered by insurance companies.
D)the existence of used car dealers who are concerned about maintaining their reputations.

Question

Quizplus · Accepted Answer

The "lemons problem" refers to the difficulty that buyers have in assessing the quality of used cars before purchasing them. This can lead to a situation where only low quality cars are offered for sale, and buyers are generally unwilling to pay high prices for used cars due to the risk of purchasing a lemon. Used car dealers, however, have incentives to sell higher quality cars and maintain their reputations with customers. This helps to overcome the "lemons problem" in the used car market.

The "Lemons Problem" Is Overcome in the Used Car Market