Warranties on products _ asymmetric information, but they do _ the lemons pro...
Question:Warranties on products _ asymmetric information, but they do _ the lemons problem.a. Reduce; not reduceb. Increase; not reducec. Do not eliminate; reduced. Do eliminate; increaseLemons problem:Lemons problem is defined as the issue that arises due to asymmetric information between two parties that is the buyer and the seller of a product or an investment. Defects in the quality or uncertainty lead to the lemons problem.
Answer and Explanation:c. Warranties on products do not eliminate asymmetric information, but they do reduce the lemons problem.
[*]Asymmetric information cannot be eliminated by providing warranty. asymmetric information arises in the course of transaction and warranty is the after sale-service provided to the buyer.
[*]Strong warranties reduce the lemons problem because the warranty protects the consumer from the consequences of purchasing a lemon (defected product).
explanation of other optionsOption (a) is incorrect.It is incorrect because warranties on the product do not reduce the asymmetric information but reduce the lemons problem.Option (b) is incorrect.Warranties do not increase asymmetric information; it does not affect the information process. It reduces the lemons problem by protecting consumers.Option (d) is incorrect.Warranties do not eliminate asymmetric information, and they do not increase the lemons problem.
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