Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because
A) car sellers would never lie.
B) car buyers are gullible.
C) the signal cannot be false.
D) a false signal can be costly to the seller.

Question

Quizplus · Accepted Answer

A false signal can be costly to the seller because if the car is not of good quality, the seller will incur costs from honoring the warranty, which deters them from offering a warranty on a low-quality car.

Used Car Buyers Believe a Car Is Good Quality When