You may be unwilling to buy a used car because you suspect the last owner found out the car was a lemon. You may treat a car you rented with a little less care than you'd use on your own car.
A)Both examples primarily illustrate adverse selection.
B)Both examples primarily illustrate moral hazard.
C)The first example primarily illustrates adverse selection; the second primarily illustrates moral hazard.
D)The first example primarily illustrates moral hazard; the second primarily illustrates adverse selection.

Question

Quizplus · Accepted Answer

The first example illustrates adverse selection because it involves asymmetric information where the seller knows more about the car's condition than the buyer. The second example illustrates moral hazard because the renter may take less care of the car since they do not bear the full consequences of their actions.

You May Be Unwilling to Buy a Used Car Because