When sellers have more information about the quality of a good than buyers do, a relatively large share of the goods in the market will be low-quality goods. This is the ________ problem.
A) free-rider
B) law of diminishing returns
C) adverse selection
D) moral hazard

Question

Quizplus · Accepted Answer

Adverse selection refers to the situation where one party to a transaction has more information than the other party, leading to a market where low-quality products dominate. In such markets, sellers of high-quality products may be deterred from entering the market, as buyers are unable to distinguish between high- and low-quality products, resulting in a market failure.

When Sellers Have More Information About the Quality of a Good