(Scenario: the Market for Experienced Vehicles) Use Scenario: the Market

Multiple Choice

(Scenario: The Market for Experienced Vehicles) Use Scenario: The Market for Experienced Vehicles. Adverse selection occurs in the used-car market because of:
Scenario: The Market for Experienced Vehicles
In the used-car market, cars of poor quality are called lemons, while cars of good quality are called plums. Suppose that the probability of obtaining a lemon is 60%, and the probability of obtaining a plum is 40%. Also, assume that a plum is worth $15,000 and that a lemon is worth $3,000.

A) private (asymmetric) information.
B) risk-loving behavior.
C) moral hazard.
D) diversification.