When sellers are unable to distinguish "good" buyers from "bad" ones, they face the problem of:
A) Moral hazard
B) Adverse selection
C) Externalities
D) Diminishing utility

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party (the seller) is unable to distinguish between "good" buyers and "bad" ones. This happens because the seller lacks information about the potential quality of the product or the buyer's ability to pay. As a result, the seller may be hesitant to sell to anyone due to the risk of getting a less than ideal buyer.

When Sellers Are Unable to Distinguish "Good" Buyers from "Bad