Owners of defective used cars have more information about the condition of their vehicles than potential buyers of those used cars. This is an example of
A) the moral hazard problem.
B) a spillover cost.
C) a positive externality.
D) asymmetric information.

Question

Quizplus · Accepted Answer

This is because asymmetric information occurs when one party has more information than another party in a transaction, which is the case here where the owner knows more about the defect in the car than a potential buyer. The other options are not applicable in this scenario as there is no mention of moral hazard, spillover costs, or positive externalities in the given scenario.

Owners of Defective Used Cars Have More Information About the Condition