The "lemons problem" in the used car market arises from
A)the difficulty U.S. producers have in making reliable cars.
B)the difficulty buyers have in distinguishing good cars from lemons.
C)the tendency of buyers of used cars to pay for them with bad checks.
D)the reluctance of many car dealers to handle used cars.

Question

Quizplus · Accepted Answer

The lemon problem in the used car market refers to the difficulty buyers have in distinguishing good cars from lemons, which are vehicles with hidden defects or problems that are not immediately apparent to a buyer. This problem arises because sellers have more information about the quality of the vehicle than buyers do, and they may have an incentive to not disclose defects in order to receive a higher price. As a result, buyers may be willing to pay less for all used cars due to the uncertainty regarding their quality.

The "Lemons Problem" in the Used Car Market Arises from