The __________ problem in the market for used cars is capable of collapsing the market for __________.
A)adverse selection; good used cars
B)adverse selection; lemons
C)moral hazard; good used cars
D)moral hazard; lemons

Question

Quizplus · Accepted Answer

The concept of adverse selection explains how a market can collapse due to asymmetric information between buyers and sellers, particularly in the market for used cars. Sellers have more information about the quality of the car than buyers, leading to a market where only low-quality cars ("lemons") prevail, as buyers are unwilling to pay premium prices without assurance of quality, driving good quality cars out of the market.

The __________ Problem in the Market for Used Cars Is