The Seller Knows More
Written by Studio AM.
Your result
- Words per minute
- Score
- Pace
Words per minute mean something only with the score beside them. They describe this passage on this read. With fewer than 3 right, try the next slower pace.
Choose a pace and select Start. The passage is paced and timed, then the questions check what you understood. How pace mode works
Reading time 0:00
A used-car seller may know years of service history, while a buyer has had only a short inspection. Economists call this unequal knowledge asymmetric information. It can make trade difficult even without a deliberate lie.
Consider a simplified market where buyers cannot distinguish sound cars from faulty ones. They offer a price reflecting the risk that any car may need repairs. At that price, some owners of good cars decide to keep them. The remaining cars are then less attractive on average, which can lead buyers to lower offers further. Under some conditions, this process drives more good cars out of the market.
Possible remedies help buyers judge quality or share the risk. Independent inspections and reliable service records provide evidence about condition. A meaningful warranty makes the seller responsible for specified problems, so it may be more costly to offer on an unreliable car. Its value still depends on the terms and whether the seller will honour them.
The issue is not simply that one side needs a lower price. Better information and enforceable commitments can make transactions possible that uncertainty would otherwise prevent.
The passage is hidden while you answer. It comes back with your result.
Questions
Choose an answer. The explanation appears after you answer.
-
Question 1 of 4
Which statement best captures the passage's argument?
The answer is A: When sellers know much more than buyers, good products can be driven out of a market.
The model shows how uncertainty about quality can lower offers and discourage owners of good cars from selling.
-
Question 2 of 4
What do some owners of good cars do when the offered price is too low?
The answer is C: Keep the car instead of selling it.
The second paragraph says some owners decide to keep their cars at the offered price.
-
Question 3 of 4
A seller offers a warranty but cannot be reached when repairs are needed. Why might it do little to reassure buyers?
The answer is B: Its promised protection is of little use if buyers cannot obtain it.
The passage says a warranty's value depends on its terms and whether it will be honoured. An unreachable seller weakens that commitment.
-
Question 4 of 4
In this passage, "asymmetric information" means
The answer is D: one side of a deal knowing far more than the other
The seller's longer experience and the buyer's brief inspection illustrate unequal knowledge between the two sides.
Score: none answered yet.