In the used car market,adverse selection is a problem primarily when
A) sellers cannot judge buyers' creditworthiness.
B) buyers cannot signal their willingness to buy.
C) buyers cannot determine the quality of a used car.
D) sellers offer warranties on all used cars.
E) sellers and buyers both agree that a particular used car is a lemon.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party has access to information that the other party does not, which can lead to market failure. In the used car market, adverse selection occurs when buyers cannot determine the quality of a used car, while sellers have information about the car's history, maintenance, and accident record. This information asymmetry can lead to buyers paying more for lower quality cars or refusing to buy altogether, which can reduce market efficiency.

In the Used Car Market,adverse Selection Is a Problem Primarily