Question

The problem of _________________ arises when an antique dealer knows more about the quality of an item than the potential buyer, and as a result the buyer with less knowledge must worry about ending up at a ________________.
A. imperfect selection; lemon
B. adverse information; lemon
C. adverse selection; disadvantage
D. imperfect information; disadvantage

Answer 1

Answer:

Option (D) is correct.

Explanation:

Imperfect information refers to a situation in which both the parties (i.e buyer and seller) have different information. For example; In a market of second hand car industry, the buyer have less information about the car as compared to the seller. In this type of industry, the seller have more information about the condition and quality of used car.

In our case, the seller of antique have more information about the product, so this will lead to give a disadvantage to a potential buyer of antique.

Answer 2

Answer:

D. imperfect information; disadvantage

Explanation:

Imperfect Information is when parties in a transaction don't have fairly equal information about the quality of the product. This usually refers to when sellers have more information than buyers.

Eg : In case of second hand cars, sellers have more information about the real quality of car & buyers can only anticipate it.

Buyer anticipates the quality of good/ service,  based on his / her evaluation about distribution of various quality of goods in the total range. However, this anticipation is subject to errors because of the 'imperfect information' he / she has, on the basis of which he / she decides. So, he/ she might pay more for a low quality good & hence might end at a disadvantage.