The classic example of adverse selection is the
A)market for used cars.
B)market for new cars.
C)relationship between shareholders and managers.
D)relationship between a coach and an athlete.

Question

Quizplus · Accepted Answer

The classic example of adverse selection is the market for used cars, famously described in George Akerlof's "The Market for Lemons" paper. In this market, sellers have more information about the quality of the car than buyers, leading to a market where only lower-quality cars (lemons) are sold at a price that does not reflect their true value.

The Classic Example of Adverse Selection Is the