Various state governments have passed "lemon laws" to protect buyers of used cars as a result of the problem of
A) moral hazard.
B) spillovers.
C) an injunction.
D) asymmetric information.

Question

Quizplus · Accepted Answer

The problem of lemon laws arises due to the asymmetric information between the buyer and seller of a used car. The seller may possess information about the car's defects that is not disclosed to the buyer, and the buyer may end up with a "lemon" car. Lemon laws provide protection for buyers against this type of situation. Moral hazard and spillovers may also be issues in the used car market, but they are not directly addressed by lemon laws. An injunction is a court order that could be issued as a result of a legal case, but is not directly related to lemon laws.

Various State Governments Have Passed "Lemon Laws" to Protect Buyers