Frank wants to buy a used car from Adam.Adam knows the car is a lemon,but he doesn't tell Frank.This is an example of:

Question

Quizplus · Accepted Answer

This is an example of adverse selection as Adam has private information (that the car is a lemon) that Frank does not have, and this information affects the outcome of the transaction. By not disclosing this information, Adam is taking advantage of Frank's lack of information and potentially getting a higher price for the car than it is worth. This creates an adverse selection problem in which buyers cannot distinguish between high-quality and low-quality cars, which can lead to market failure.

Frank Wants to Buy a Used Car from Adam