When buyers know more than sellers about how costly the buyers are likely to be to the sellers, then
A)sellers are likely to charge a price that drives the most expensive customers out of the market.
B)buyers will exert pressure on sellers to charge a price based on the least expensive customers.
C)buyers will exert pressure on sellers to charge a price based on the most expensive customers.
D)sellers are likely to charge a price that drives the least expensive customers out of the market.

Question

Quizplus · Accepted Answer

This scenario describes a phenomenon known as adverse selection, where the party with more information (in this case, the buyers) can adversely affect the market outcome. Sellers, lacking specific information about each buyer's cost, are likely to set a price that averages out their expected costs across all buyers. This price may be too high for the least expensive (or least risky) customers, driving them out of the market, while still being attractive to the more expensive (or riskier) customers.

When Buyers Know More Than Sellers About How Costly the Buyers