Adverse selection occurs in the used car market because:
A)the seller has more information than the buyer.
B)the buyer has more information than the seller.
C)both the buyer and the seller have incomplete information.
D)Any of these could be the cause of adverse selection in the used car market.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other, typically leading to a market failure. In the used car market, the seller often knows more about the car's condition than the buyer, which can lead to the buyer purchasing a lower quality vehicle than expected. This is a classic example of information asymmetry leading to adverse selection.

Adverse Selection Occurs in the Used Car Market Because