Question

Candace buys a car called a Yugonero (a knock-off of the Canyonero). Despite well-documented problems in the press, Candace is willing to take the gamble that the Yugonero will perform as well as the Canyonero. Instead, Candace ends up spending an extra $40,000 (in time, money, and aggravation) over the next 5 years on repairs (there was no warranty). While she had read that this type of maintenance cost was typical, she hoped she would be one of the lucky ones. What is the market failure in this scenario?

Answer 1

There is no market failure in this case, since Candace knew about the Yugonero's multiple mechanical issues and she also knew that it didn't offer any type of warranty, plus she had read several press releases detailing the problems related with the Yugonero. She just decided to take the chance of buying one of the few Yugoneros that were built properly and operated without any problems. She probably paid much less for the Yugonero and that was probably her main motivation.

Step-by-step explanation: