Use the Following to Answer Questions

Multiple Choice

Use the following to answer questions
Scenario: Used Car Market
In the used car market, cars of poor quality are called lemons, while cars of good quality are plums. Suppose the probability of obtaining a lemon is 60% and the probability of obtaining a plum is 40%. Also assume a plum is worth $15,000 and a lemon is worth $3,000.
-(Scenario: Used Car Market) Look at the scenario Used Car Market. Adverse selection in this used car market occurs because of:

A) asymmetric information.
B) risk-loving behavior.
C) moral hazard.
D) diversification.
Answer Key