Suppose you are about to buy a car and ask to see a vehicle history report to
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Suppose you are about to buy a car and ask to see a vehicle history report to check on previous accidents or problems reported for that car. When you are told that this information is not available, you decide not to buy the car.
a) Do you think this example illustrates an adverse selection or moral hazard problem?
b) What is the connection between the lack of information and the probability that a transaction will occur?
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a This example primarily illustrates an adverse selection problem Adverse selection occurs when one ...View the full answer
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