A consumer is looking to purchase a used electric vehicle (EV) from a private seller. Which one of the following explains why asymmetric information between the buyer and the seller might lead to market failure in this transaction?
The consumer faces high search costs and cognitive limitations when evaluating the complex technical specifications of different electric vehicle models.
The seller has private, non-verifiable knowledge regarding the vehicle's actual battery degradation and previous driving history, whereas the buyer can only observe external aesthetics and mileage.
The market price of used electric vehicles is driven below the social optimum due to positive externalities associated with reduced carbon emissions.
Monopoly power among a small number of electric vehicle manufacturers allows them to restrict supply and inflate prices in the second-hand market.
45 exam-style questions on AQA A Level Economics 1.2 Individual economic decision making (A-level only), covering 1.2.1 Consumer behaviour, 1.2.2 Imperfect information, 1.2.3 Aspects of behavioural economic theory, and 1.2.4 Behavioural economics and economic policy. Each one has a worked solution and a mark scheme showing where the marks go.