The "lemons problem" exists in the market for goods because
A) sellers tend to try to take advantage of buyers.
B) buyers tend to try to take advantage of sellers.
C) of the differences in the quality of the goods being exchanged.
D) of moral hazard.

Question

Quizplus · Accepted Answer

The "lemons problem" arises due to differences in the quality of goods being exchanged, where sellers may offer lower quality goods for a higher price, leading to a lack of trust between buyers and sellers. This can result in a market failure, as buyers may be unwilling to purchase the goods due to uncertainty about their quality. A and B suggest a lack of trust and opportunistic behavior by either buyers or sellers, but these are not the direct cause of the "lemons problem." D is related to asymmetric information but is not specific to the market for goods.

The "Lemons Problem" Exists in the Market for Goods Because