How asymmetric information prevents gains from trade Juanita sees a classified a

Question

How asymmetric information prevents gains from trade Juanita sees a classified ad from Gilberto offering a used digital camera for $30. On the opposite page, she sees a big color ad from a national electronics chain offering a new digital camera for $175. Juanita values a digital camera at $220 as long as it works, regardless of whether It is new or used. For each of the scenarios listed, determine the principle illustrated by each person's reasoning. Why is Gilberto unable to sell Juanita the digital camera? Check all that apply. Square 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. Square Adverse selection can cause buyers to avoid purchasing high-quality goods because of the uncertainty about their quality.

Explanation / Answer

Ans 1. Moral hazard

Ans 2. Adverse selection

Ans 3 Both, Moral hazard and Adverse selection.

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