The "lemons problem" exists in the market for goods because
A)sellers tend to try to take advantage of buyers.
B)buyers tend to try to take advantage of sellers.
C)differences in the quality of the goods being exchanged.
D)of moral hazard.

Question

Quizplus · Accepted Answer

The "lemons problem" refers to the issue of asymmetrical information between buyers and sellers, where buyers have less information than sellers about the quality of the goods being exchanged. This can lead to a situation where sellers can take advantage of buyers by offering lower quality goods at a higher price, leading to market failure. The term "lemons" is often used to refer to lower quality goods. Thus, differences in the quality of goods being exchanged are the reason why the "lemons problem" exists in the market, making choice C the best answer.

The "Lemons Problem" Exists in the Market for Goods Because