Rhonda would like to sell her existing digital camera to upgrade to a more sophisticated one by advertising on the bulletin board in the student center.She decides against it because the used digital cameras listed on the board are underpriced.This describes the problem of:
A)adverse selection.
B)moral hazard.
C)positive correlation.
D)risk aversion.

Question

Quizplus · Accepted Answer

This scenario describes adverse selection, which occurs when sellers of high-quality goods choose not to sell because they fear their products will be undervalued in a market where there is a high proportion of low-quality goods being sold at lower prices. In this case, Rhonda is hesitant to sell her digital camera because she believes that it will be undervalued due to the presence of underpriced used cameras on the bulletin board. This fear may prevent her from offering her camera for sale and may also reduce the number of high-quality cameras available for sale on the board, which could reduce the overall value of the market for used digital cameras.

Rhonda Would Like to Sell Her Existing Digital Camera to Upgrade