A digital peer-to-peer platform for trading high-end refurbished smartphones experiences a significant decline in activity. Because buyers cannot verify the internal battery health and component authenticity prior to purchase, they are only willing to pay an average price that assumes a medium-to-low product quality. Consequently, sellers of certified, pristine smartphones withdraw their items from the platform, leaving a marketplace dominated by low-quality devices.
This situation is an example of which concept associated with asymmetric information?
Moral hazard
Adverse selection
The principal-agent problem
Negative externality of consumption
11 exam-style questions on OCR A Level Economics Information failure. Each one has a worked solution and a mark scheme showing where the marks go.