If sellers charge only one price in a market where buyers have private information, then sellers
A)end up with a mix of customers skewed toward expensive customers.
B)end up with a mix of customers skewed toward less expensive customers.
C)can avoid adverse selection.
D)will flourish as much as possible.

Question

Quizplus · Accepted Answer

When buyers have private information, they are more likely to buy if the price is lower than their reservation price. Since expensive buyers have a higher reservation price, they are more likely to buy than less expensive buyers, creating a bias towards expensive customers. This is known as adverse selection, and it can lead to reduced profits for sellers. Therefore, the best choice is A because sellers end up with a mix of customers skewed toward expensive customers.

If Sellers Charge Only One Price in a Market Where