Question

Predictions using the supply-and- demand model for used cars are likely not reliable because consumers know less than suppliers about used car quality not reliable because it is difficult to find buyers and sellers of used cars reliable because the used car market is competitive reliable because used cars have many buyers reliable because used cars have few sellers

Answer 1

Predictions in the used car market using supply-and-demand can be unreliable due to imperfect information, as consumers may link price with quality. Lower prices could imply low quality to buyers, while higher prices might suggest better quality, affecting equilibrium price and quantity.

Step-by-step explanation:

The reliability of predictions using the supply-and-demand model for used cars is questionable due to imperfect information in the market. Buyers often make assumptions about quality based on price, leading to a situation where lower prices might signal lower quality, deterring buyers rather than attracting them. Conversely, higher prices might give an impression of better quality, potentially increasing sales. This phenomenon can prevent markets from reaching equilibrium price and quantity.

When either party in a transaction, buyer or seller, has less than 100% certainty about the quality of a product, it can be challenging for the market to function efficiently. Without reliable information, consumers may not behave as classical economic theories predict, which further complicates the application of the supply-and-demand model in markets with imperfect information, such as the used car market.

Answer 2

The answer is: Not reliable because consumers know less than suppliers about used car quality.

Step-by-step explanation:

Predictions using the supply and demand (S&D) model are reliable when:

• companies sell identical products,
• everyone involved (suppliers and consumers) has full knowledge
• about the price and quality of the products or services being offered,
• both the suppliers and consumers are price takers (have no control to dictate prices), and
• the costs of trading are low

If one or more of these conditions are not met, then the S&D model wouldn´t work properly. In this specific case, the suppliers had much information about the quality of the used cars than their customers.