John and Jack are both trying to sell a used car to Jim. John's car is a lemon, a car that has a serious but nonobvious problem. Jack's car is a cherry, a car that has no problems. Jim cannot tell the difference between the cars. Economists say this information problem might be solved with signaling. Who has an incentive to find a way to signal quality?
A) Both Jack and John
B) Jack but not John
C) John but not Jack
D) Jim

Question

Quizplus · Accepted Answer

Jack has an incentive to signal quality because he wants to differentiate his high-quality car from John's lemon, thereby attracting Jim to buy his car.

John and Jack Are Both Trying to Sell a Used