Using the concept of information asymmetry, answer the following questions:

a. You observe that used cars sold by new car dealers sell for a higher price, for models of same make, year, and condition, than used cars sold by used car dealers. Why?

b. Why would a fire insurance policy contain a $1,500 deductible provision?

c. Why would a life insurance company require a medical examination before approving applications for new policies?

d. A firm plans to raise additional capital by means of a new issue of common shares. Before doing so, it hires a well-known investment house to help design and market the issue, and also switches auditors from a small, local firm to a "Big Four" firm. Why? (CGA-Canada)

Answer rating: 100% (QA)

a Case the used cars sold by car dealers sell for a higher price for models of same make year and condition than used cars sold by used car dealers Analysis The above situation occurs due to the fact ... View the full answer