Scenario: You walk into a used car lot to buy your first car. However, you are not sure of the quality of the cars in the lot and expect one-third of them to be of poor quality.
-Refer to the scenario above.Based on the given information,we can conclude that the market for used cars has ________.
A) information asymmetry
B) a perfectly competitive structure
C) positive externalities
D) negative externalities

Question

Quizplus · Accepted Answer

The presence of information asymmetry, where the seller has more information about the quality of the cars than the buyer, is indicated by the buyer's uncertainty concerning the quality of the cars in the lot. This can make it difficult for the buyer to make an informed decision and lead to the seller taking advantage of this knowledge gap to sell lower quality vehicles at a higher price.

Scenario: You Walk into a Used Car Lot to Buy