The answer is a. very unlikely, adverse selection. Potential buyers are unlikely to pay the asking price due to asymmetric information; the discount may be perceived as indicating undisclosed issues with the amplifier. Option a is the correct choice.
The most appropriate answer is a. very unlikely, adverse selection. Adverse selection refers to a situation where one party in a transaction has more information than the other, leading to potential market inefficiencies. In this case, the seller (you) has information about the amplifier's minimal use and proper storage, but potential buyers are unaware of its history. Given the high-quality and durable nature of Marshall amplifiers, a buyer might reasonably assume that a significant price reduction indicates a hidden flaw or problem.
The asymmetry of information increases the likelihood of attracting buyers who perceive the amplifier as lower quality than it actually is. Consequently, potential buyers may be hesitant to pay the relatively high asking price, suspecting undisclosed issues and making the sale very unlikely at the listed amount.
Que. Suppose your band is about to take off, so you go out and buy a brand new Marshall Tube Head and Cabinet amplifier for the list price of about $4,200. Your band immediately breaks up after you've used it only once. You hang on to it for a year or so in case your drummer and bass player can work out their differences, but it never happens. You finally decide to sell it on Craigslist. Since you know it's been used only once, and it's been properly stored for a year, you reason that it's still worth close to what you paid for it, so you list it for $3,800—almost 10% off of the new price. How likely are you to find a buyer willing to pay your asking price? Why is this so?
a. very unlikely, adverse selection.
b. very unlikely, moral hazard.
c. highly likely, adverse selection.
d. highly likely, moral hazard.