Scenario: The market for used cell phones is very popular in Barylia. However, several phones available in this market are of an inferior quality, and it is often impossible to differentiate between a good-quality phone and a poor-quality phone.
-Refer to the scenario above.Which of the following problems is likely to arise in the market for used cell phones in Barylia?

Question

Quizplus · Accepted Answer

Adverse selection is the problem likely to arise in the market for used cell phones in Barylia. Adverse selection occurs when there is an imbalance of information between the buyer and seller. In this case, the seller may have more information about the quality of the phone than the buyer, which can lead to the sale of poor-quality phones that cannot be differentiated from good-quality phones. As a result, buyers may be less willing to purchase used cell phones from this market, leading to a decrease in demand and a potential collapse of the market.

Scenario: the Market for Used Cell Phones Is Very Popular