Because the seller of a used car has more information than the buyer:
A) the problem of moral hazard occurs.
B) the problem of information overload occurs.
C) the problem of adverse selection occurs.
D) the problem of bargaining imbalance occurs.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party has more information than the other party in a transaction, leading to an imbalance of information. In the case of a used car, the seller typically has more information about the condition of the car, its history, and any potential issues. This can lead to the buyer being at a disadvantage and potentially purchasing a car that has undisclosed problems or defects, known as a lemon.

Because the Seller of a Used Car Has More Information