Question

The major prediction of the lemons model is that:

a. asymmetric information reduces the average quality of goods offered for sale.
b. a used car in good condition can be sold for a higher-than-average price.
c. people will generally choose "low-hanging fruit".
d. used cars offered for sale are generally in better-than-average condition.

Answer 1

A) asymmetric information reduces the average quality of goods offered for sale.

Step-by-step explanation:

The lemons model or problem refers to investing or purchase related problems due to the fact that investors/buyers have different information about securities/products than the sellers.

Since investors/buyers know that there are lemons (bad products) up for sale, but do not know which of them are actually bad, they will be willing to pay a lower price for high quality investments/goods than if only high quality investments/goods were sold without any lemons mixed with them.