Because of the "lemons problem" the price a buyer of a used car pays is
A)equal to the price of a lemon.
B)less than the price of a lemon.
C)equal to the price of a peach.
D)between the price of a lemon and a peach.

Question

Quizplus · Accepted Answer

The "lemons problem" refers to the information asymmetry between buyers and sellers in the used car market. Buyers cannot always accurately assess the quality of a used car, which creates a risk of purchasing a "lemon" (a car with hidden defects). This risk reduces the demand for used cars, which in turn lowers the price. However, not all used cars are "lemons." Some may be in good condition and worth more than a "lemon." Therefore, the price a buyer pays for a used car is typically between the price of a "lemon" and a higher quality car (sometimes referred to as a "peach"). Thus, the best answer is D.

Because of the "Lemons Problem" the Price a Buyer of a Used