The classic example used to discuss the problem of adverse selection is:
A) fruit and produce markets, such as lemons.
B) workers who shirk when their effort isn't closely monitored.
C) the imbalance of information that exists between a buyer and seller of a used car.
D) drivers with insurance who tend to drive more recklessly.

Question

Quizplus · Accepted Answer

The imbalance of information that exists between a buyer and seller of a used car is the classic example of adverse selection. The seller usually has more information about the car's condition and history than the buyer, which can lead to the buyer unknowingly purchasing a low-quality vehicle at a high price. This situation arises because the seller may have an incentive to hide negative aspects of the product to get the highest price possible.

The Classic Example Used to Discuss the Problem of Adverse