Rihanna would like a better car, and she considers selling her old one by advertising on Kijiji. She decides against it because the used cars listed on Kijiji are underpriced. This example illustrates the problem of:
A)adverse selection.
B)moral hazard.
C)positive correlation.
D)risk aversion.

Question

Quizplus · Accepted Answer

Adverse selection refers to the problem of asymmetric information where only the seller knows the true value of the product being sold. In this case, Rihanna has information about the condition and value of her car which potential buyers on Kijiji may not be aware of. As a result, she may receive lower offers due to the underpriced cars listed on the website, leading to adverse selection.

Rihanna Would Like a Better Car, and She Considers Selling