Consider a market in which high-quality and low-quality television sets are sold. Before consumers make a purchase, they do not know the quality of the sets, but the sellers do know. As compared to a situation where both consumers and sellers know the quality of the sets, this situation would:
A) cause no change in the ratio of low to high-quality sets sold.
B) increase the fraction of high-quality sets sold.
C) increase the fraction of low-quality sets sold.
D) cause the average price of goods sold to rise.

Question

Quizplus · Accepted Answer

In a situation where consumers do not know the quality of the sets, they may be more likely to purchase low-quality sets because they are typically less expensive. This could lead to an increase in the fraction of low-quality sets sold, as sellers may take advantage of this and offer more low-quality sets.

Consider a Market in Which High-Quality and Low-Quality Television Sets