To explain:
Whether the buyers will know that their car is lemon or not, if the used car market is working competently and the reason for it.
Answer to Problem 1SPPA
The buyers can understand that the car is a lemon.
Explanation of Solution
If the used car market is working efficiently, then the supplier warranties will signal to buyers whether a car is good or a lemon. So, if a seller sells a vehicle without going through a provider; the consumer can without difficulty realize that the car is lemon.
The consumer can check below mentioned things to identify whether the car is good or lemon:
- Read the window sticker properly.
- Check interior and exterior.
- Check tires and steering.
- Check reliability record.
Lemons in the car market:
The concept of lemon in the market refers to the situation where there is irregularity in information between the buyer and seller. In the used car market of the U.S., lemons refer to those cars that are found to be defective after they are bought.
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Chapter 12 Solutions
Foundations of Economics (8th Edition)
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