The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 20

Why does a new car lose so much of its value in the first year? Is it because Americans have an irrational attachment to cars that are new rather than used?
(a) Which year-old car is more likely to be on the used-car market: one that performed handsomely for its owner or one that had to be taken in regularly for repairs during its first year?
(b) Which set of vehicles being offered for sale will contain a larger percentage of vehicles with defects known to the seller but unknown to the buyer: new cars or year-old cars?
(c) What does all this imply about the prices sellers are willing to accept and that buyers are willing to offer for year-old cars, relative to what they would be if all buyers and sellers had complete information?
(d) Why do used-car dealers sometimes provide warranties with the cars they sell and at other times advertise "As Is-No Warranties, All Sales Final"?