Potential buyers of older homes form their bids from imperfect estimates of a house's value As a consequence,
A)Lower quality houses are more likely to be up for sale
B)Higher quality houses are more likely to be up for sale
C)Both the higher and lower value houses would be offered for sale
D)No houses would be offered for sale

Question

​Potential buyers of older homes form their bids from imperfect estimates of a house's value As a consequence,
A)​Lower quality houses are more likely to be up for sale
B)Higher quality houses are more likely to be up for sale
C)Both the higher and lower value houses would be offered for sale
D)No houses would be offered for sale​

Quizplus · Accepted Answer

The phenomenon described is known as the "lemons problem" or adverse selection, where sellers have more information about the quality of a good than buyers do. In the context of housing, this means that owners of lower quality houses are more likely to sell, as the market price will be relatively more favorable to them compared to the true value of their home. Buyers, aware of their imperfect information, adjust their bids accordingly, which discourages sellers of higher quality homes from selling.

​Potential Buyers of Older Homes Form Their Bids from Imperfect

Potential Buyers of Older Homes Form Their Bids from Imperfect