The used car market has a significant amount of adverse selection because ________.
A) the seller knows more about the car than the buyer
B) the buyer can easily find out more about the car than the seller
C) buyers and sellers rarely have enough information about the car
D) the transaction costs of the used car market are prohibitively high

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction has more information than the other party, which is the case in the used car market where the seller usually knows more about the car than the buyer. This knowledge asymmetry can lead to market failure, as buyers may be unwilling to pay a fair price for the car due to the risk of hidden problems that the seller may not disclose.

The Used Car Market Has a Significant Amount of Adverse