Assume that the value of a high-quality used phone of a particular model is $200. The value of a low-quality model of the same used phone is $100. Assume that 15% are low-quality models and 85% of them are high quality. What will be the case in the market for used phones of that model?
A)Fewer than 15% of the buyers will expect low quality.
B)Fewer than 15% of the sellers will charge low price.
C)Fewer than 15% of the phones sold will be low quality.
D)More than 15% of the phones sold will be low quality.

Question

Quizplus · Accepted Answer

Due to information asymmetry, buyers may be unable to distinguish between high and low-quality phones, leading them to offer a price closer to the average value. This can result in more low-quality phones being sold than their actual proportion in the market.

Assume That the Value of a High-Quality Used Phone of a Particular