Question

Why is Caroline unable to sell Antonio the lawn mower? Check all that apply.

(A) Adverse selection can cause buyers to avoid purchasing high-quality goods because of the uncertainty about their quality.
(B) Moral hazard can prevent sellers from offering guarantees of quality because they can't be sure that buyers won't try to take advantage of the guarantees by filing false claims.
(C) Caroline knows the mower is in good condition but is selling it only because she is replacing her lawn with a new deck.
(D) Antonio believes that someone would ask $30 for a used lawn mower only if it didn't work well.

Answer 1

Caroline cannot sell the lawn mower to Antonio due to adverse selection causing uncertainty about the mower's quality and Antonio's assumption that a low price indicates poor quality.

Step-by-step explanation:

Caroline is unable to sell Antonio the lawn mower for a few reasons related to market dynamics and information asymmetry. Firstly, adverse selection may cause Antonio to be skeptical about the quality of the mower because he lacks perfect information about its condition, making him reluctant to proceed with the purchase (Option A). Secondly, Antonio's own inference that a low price may imply poor quality (Option D) makes him doubt the value of the lawn mower, a phenomenon where the price signals in the market can lead to incorrect assumptions about product quality. Lastly, while not explicitly stated among the options, the concept of moral hazard could also play a role in other scenarios where sellers might hesitate to offer warranties due to the risk of false claims, but it does not directly prevent Caroline from selling the mower to Antonio in this case (Option B).