Problems associated with thin markets provide incentives for
A) buyers to seek information about identifying high-quality items.
B) sellers to prove that the items they are selling are of high quality.
C) buyers and sellers to agree upon a higher price than would hold in equilibrium.
D) both A and B.

Question

Quizplus · Accepted Answer

Thin markets are characterized by trade limitations, low transaction volumes and reduced liquidity, which can lead to the following problems: high price volatility, market manipulation, difficulty in finding a counterparty, and uncertainty about the quality and price of items. To overcome these challenges, buyers and sellers in thin markets need to acquire information about one another to establish trust, reduce information asymmetry and facilitate trade. This means that buyers need to seek information about the quality of items, and sellers need to prove that their items are of high quality. Therefore, both A and B are correct. Choosing option C is not suitable because it suggests that parties may agree upon a higher price than would hold under equilibrium conditions, which is not necessarily the case in thin markets.

Problems Associated with Thin Markets Provide Incentives for