When a market has an adverse selection problem due to seller's having private information, then
A)buyers have a hard time finding high-quality products to buy.
B)sellers have a hard time producing high-quality products to sell.
C)average price will rise to the level of high-quality products.
D)sellers of low-quality products will leave the market.

Question

Quizplus · Accepted Answer

Adverse selection occurs when sellers have information that buyers do not have, and this can lead to buyers having a difficult time finding high-quality products. Sellers with low-quality products will still try to sell their products, but due to asymmetric information, buyers may not be able to distinguish between low-quality and high-quality products, and may be unwilling to pay a high price. This can lead to a market failure, where the market does not clear and inefficient outcomes occur.

When a Market Has an Adverse Selection Problem Due to Seller's