Question

Warranties work as signals in the used car market because​ _______.

A.

buyers want to believe​ they're getting a good deal

B.

all car dealers are more interested in their customers than in their own profit

C.

buyers are not sophisticated enough to distinguish an honest dealer from a dishonest one

D.

a dealer who sells a lemon with a warranty ends up paying a big repair​ bill, so dealers are careful to avoid selling lemons

The principle of​ ______ applies to information.

A.

increasing marginal benefit

B.

constant marginal cost

C.

decreasing marginal benefit

D.

decreasing marginal cost

Answer 1

Option C

So warranties would help the buyers to buy a used car

Option C

By buying the lemons (defective) the marginal benefit would decrease