What is the classic example of adverse selection
A)the market for used cars
B)the market for new houses
C)the relationship between husband and wife
D)the relationship between a worker and his employer

Question

Quizplus · Accepted Answer

The classic example of adverse selection is the market for used cars. In this market, sellers have more information about the quality of the car than buyers, which can lead to buyers being willing to pay less than the car's true value or not buying the car at all. This is because there is a higher likelihood of the car being of low quality, as sellers with high-quality cars may keep them rather than selling them in the used car market. This asymmetry of information between buyers and sellers is the hallmark of adverse selection.

What Is the Classic Example of Adverse Selection