Warranties in the used car market ________ the problem of private information thereby causing the price of good and bad used cars to ________.
A) reduce; be the same
B) reduce; differ
C) magnify; be the same
D) magnify; differ
E) None of the above answers is correct because warranties have nothing to do with private information.

Question

Quizplus · Accepted Answer

Warranties reduce the problem of private information by providing a signal of quality for the used cars. This leads to a differentiation of prices between good and bad used cars, hence reducing the price gap between them.

Warranties in the Used Car Market ________ the Problem of Private