Wednesday, August 03, 2005

Applied Economics: The Market for Lemons

My parents just bought a 2005 Chevrolet Malibu with about 15,000 miles on it for $11,000, about two-thirds the price of a new Malibu (2005 or 2006). They bought it with two years remaining on the bumper-to-bumper warranty, and paid a bit more to get an additional five years of the bumper-to-bumper warranty. This strikes me as a very elegant example of how markets struggle to overcome market failures, something Larry quite forcefully pointed out.

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