Asymmetric information exists in the market for used cars because
A) sellers have better information concerning the quality of used cars than buyers.
B) buyers have better information concerning the quality of used cars than sellers.
C) buyers and sellers have equal information concerning the quality of used cars.
D) it is impossible for buyers or sellers to determine the quality of used cars.

Question

Quizplus · Accepted Answer

Asymmetric information exists in the market for used cars because sellers have better information concerning the quality of used cars than buyers. This is because sellers are typically more knowledgeable about the history and condition of the car they are selling, while buyers have limited information on the car's past and current state. This information asymmetry can lead to issues such as adverse selection, where buyers may only be willing to purchase lower quality cars at a higher price, and moral hazard, where sellers may take advantage of buyers by selling subpar vehicles without disclosing their true condition.

Asymmetric Information Exists in the Market for Used Cars Because