Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because

Question

Quizplus · Accepted Answer

Offering a warranty is a credible signal of good quality because it can be costly for the seller if the car is not of good quality. The warranty means the seller is confident enough in the car's condition to offer protection against future repairs, which would be an unnecessary cost if the car were likely to have issues. This aligns with signaling theory, where credible signals must entail a cost to the signaler that would not be rational if the signal were false.

Used Car Buyers Believe a Car Is Good Quality When