Some sellers of used cars provide warranties to buyers, with the aim of reassuring buyers that the car is of good quality. These warranties help reduce the chance of what occurring?

Question

Quizplus · Accepted Answer

Warranties on used cars help mitigate adverse selection by assuring buyers of the quality of the car, reducing the risk of purchasing a low-quality vehicle unknowingly. Adverse selection occurs when there is asymmetric information between buyers and sellers, leading to the market being dominated by lower-quality goods.

Some Sellers of Used Cars Provide Warranties to Buyers, with the Aim