Based on your understanding of asymmetric information, why would you expect the

ID: 1228330 • Letter: B

Question

Based on your understanding of asymmetric information, why would you expect

the price of a brand new car to fall immediately after it is bought and driven off the

lot?

a. Because it is very expensive to bring the car back on the lot. It has to be

washed and vacuumed and recertified.

b. If the owner tried to sell it soon after she bought it, people will place a high

probability that something is wrong with the car.

c. The owner might be a smoker and the car might not smell as nice as when it

is genuinely new.

d. Speculators drive the price of a used car down.

b. If the owner tried to sell it soon after she bought it, people will place a high

probability that something is wrong with the car.

The wholesale value is always less than the original retail value.The car becomes old as soon as it is bought and driven off the lot.

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