Which phenomenon does the lemons problem likely explain
A)For several months after it is purchased, the price of a new car falls very little.
B)Almost no one favours government-provided health insurance.
C)People in average health may be discouraged from buying health insurance due to the high price.
D)Employers are reluctant to monitor the activities of their workers, fearing that some of the workers may take legal action against the employers.

Question

Quizplus · Accepted Answer

The lemons problem is a market failure that arises when the seller knows more about the quality of a product than the buyer. In the case of health insurance, people in average health may be reluctant to buy insurance because they know they are not likely to incur high medical expenses, whereas people with pre-existing conditions, or "lemons," are more likely to seek coverage. This can lead to adverse selection, where the pool of insured individuals consists mainly of those who are the costliest to insure, driving up premiums for everyone.

Note: A, B, and D are not explained by the lemons problem.

Which Phenomenon Does the Lemons Problem Likely Explain