The classic example of adverse selection is the
A)market for used cars.
B)market for new houses.
C)relationship between husband and wife.
D)relationship between a worker and his employer.

Question

Quizplus · Accepted Answer

The market for used cars is a classic example of adverse selection because the seller of a used car has more information about the car's condition than the buyer. The buyer is at a disadvantage because they cannot fully evaluate the car's quality, and sellers can take advantage of this by charging higher prices for lower-quality cars. As a result, buyers may be more likely to purchase lower-quality cars, driving down the average quality of used cars on the market.

The Classic Example of Adverse Selection Is the