Final answer:
The statement that warranties can help consumers distinguish lemons from good cars is false; while warranties can be a quality signal, they are not definitive indicators because even sellers of low-quality cars can, and often do, offer them.
Step-by-step explanation:
The statement that consumers will be able to tell which cars are lemons if both good cars and lemons offer a warranty is false. Just providing a warranty does not necessarily signal that a car is not a lemon. A warranty can indeed be part of a strategy by sellers to address information asymmetry, where the seller knows more about the product than the buyer, and, in this sense, can be seen as a signal of quality. However, it is not a definitive way to distinguish lemons from good cars because even sellers of lemons can offer warranties. What really matters is the reputation of the seller and the specifics of the warranty. A trustworthy reputation signals to buyers that a dealer cares about the long-term reliability of their vehicles and that they would likely avoid selling lemons. By contrast, sellers with less to lose regarding their reputation may offer a warranty, but the coverage or their willingness to honor it may differ significantly.