Severe adverse-selection problems may result in
A)too few good used cars being offered for sale.
B)wages that are too low relative to equilibrium levels.
C)too many good drivers buying too much automobile insurance.
D)people with average health buying too much health insurance.

Question

Quizplus · Accepted Answer

Severe adverse-selection problems in the market for used cars can lead to too few good used cars being offered for sale. This is because buyers are unable to distinguish between good and bad cars, and sellers of good cars are unwilling to sell at the same price as sellers of bad cars, since they would be unable to recover the cost of maintaining their vehicle. As a result, there is a shortage of good quality used cars in the market.

Severe Adverse-Selection Problems May Result in