One consequence of the asymmetric-information problem in the used car market, if left unresolved, is the higher probability of
A) new cars declining in quality because of competition from used cars.
B) a declining quality of used cars for sale in the market.
C) a rising quality of used cars for sale in the market.
D) used-car buyers willing to pay higher prices in the market.

Question

Quizplus · Accepted Answer

The asymmetric-information problem in the used car market refers to the fact that sellers of used cars have more information about the quality of the cars they are selling than buyers do. This creates a situation where buyers cannot accurately assess the true value of the car they are purchasing, leading to a market where lower-quality cars are sold at higher prices. If left unresolved, this problem would lead to a declining quality of used cars available in the market, as sellers would have no incentive to maintain or improve the quality of their cars.

One Consequence of the Asymmetric-Information Problem in the Used Car