In the market for used air rifles, the overwhelming majority of rifles for sale do not shoot very accurately. This situation is an example of _____ and results from _____.
A) signaling; adverse selection
B) moral hazard; asymmetric information
C) adverse selection; asymmetric information
D) an agent problem; moral hazard

Question

Quizplus · Accepted Answer

C) Adverse selection; asymmetric information. In markets where buyers cannot easily assess the quality of a product (asymmetric information), lower-quality goods can dominate the market (adverse selection) because sellers of high-quality goods are not adequately compensated for their higher quality, leading them to withdraw from the market.

In the Market for Used Air Rifles, the Overwhelming Majority