In the used car market without warranties, adverse selection results in
A) sellers of "lemons" claiming that their car is a lemon.
B) only lemons being available for sale.
C) the market price of used cars equal to that of good used cars.
D) all of the above.

Question

Quizplus · Accepted Answer

Adverse selection occurs when buyers cannot distinguish between high-quality and low-quality cars, leading to only low-quality cars ("lemons") being sold, as sellers of high-quality cars exit the market due to undervaluation.

In the Used Car Market Without Warranties, Adverse Selection Results