Question
Microeconomics Question on Public goods and market failure
Suppose high quality and low quality products are sold at the same price to the buyers. The buyers have less information to determine the quality of the product compared to the sellers at the time of purchase. Which of the following problems arises in this situation?
A
Moral hazard problem
B
Market signaling problem
C
Principal-agent problem
D
Adverse selection problem
Answer
Adverse selection problem
Explanation
Solution
The correct answer is (D): Adverse selection problem