Because the seller of a used car has more information than the buyer:
A)the problem of adverse selection occurs.
B)the problem of moral hazard occurs.
C)the problem of information overload occurs.
D)the problem of bargaining imbalance occurs.

Question

Quizplus · Accepted Answer

Adverse selection occurs when the seller has more information than the buyer, leading to the buyer being uncertain about the quality of the product they are purchasing. In the case of a used car, the seller may have information about any underlying issues or problems with the car that the buyer is not aware of. This can lead to a situation where the buyer pays a higher price for the car than it is worth, or may end up purchasing a car that requires expensive repairs.

Because the Seller of a Used Car Has More Information