Class 25, Quiz 23 econ103 PDF

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Class 25, Quiz 23 econ103...

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Class 25, Quiz 23: To be done at home and handed in to TA section Note that you may work with one other person from your TA section.

Lemons and Asymmetric information 

You are looking to buy a used car. You see an advertisement for a car that sounds like a very good buy; it is offered at a low price and the seller claims that it is in excellent condition and has had almost no problems. Will you believe him? Will you buy the car? What might you do before deciding? o

I would first check the reliability of the advertisement. If the page of ads is reliable then I will move to the next step, which would call the number and talk to the seller. He/she will most likely give great reviews. I would ask to test drive the car for an hour. If it runs smooth. I would check if it is up to date on all services and inspections. If all is going smooth I would consider the car, but still be skeptical of the price. I would ask the seller why is he/she getting rid of the car and if it had any previous problems. If the seller is trustworthy and the car seems to be in great shape I would probably purchase it.

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Suppose the car is offered for sale by friend. How might that change your thinking about this purchase? o

If my friend is selling it I trust him from the start. I would hope that he would tell me any problems and I would understand a low price because

he is giving a friendly discount. I would have a better chance of buying a car from a friend because of the level of trust I have for him.

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How would you feel if the car is offered for sale by a long-established used car dealer? o

I believe i would be the most trustworthy in a car dealer. Especially, if the dealer has a good reputation because more people purchase from a dealer than any average person. They also have to follow rules and regulations when selling cars. A car dealer could also have warranty or some sort of return policy. Therefore, I would trust the dealer the most....