Which of the following is a possible result of adverse selection?
A)Only lemons remain in the market for used cars.
B)A store manager shirks his responsibility because his supervisor is not present at all times.
C)A car mechanic does not bother to properly fix the customers' cars when his work cannot be monitored.
D)Many people selling their houses at very low prices expecting prices to decline further.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party in a transaction has more information than the other party and uses that information to their advantage. In the case of used cars, sellers with inferior or defective cars (lemons) are more likely to sell them than sellers with good cars because they have more to gain from the transaction. As a result of this adverse selection, only lemons remain in the market for used cars as buyers with good cars start to withdraw.

Which of the Following Is a Possible Result of Adverse