Asymmetric information and used cars
Religion & Liberty Online

Asymmetric information and used cars

Note: This is post #64 in a weekly video series on basic microeconomics.

Adverse selection occurs when an offer conveys negative information about what is being offered. For example, in the market for used cars, sellers have more information about the car’s quality than buyers. This leads to the death spiral of the market, and market failure, explains Marginal Revolution University. However, the market has developed solutions such as warrantees, guarantees, branding, and inspections to offset information asymmetry.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Click here to see other videos in the Introduction to Economics series.

Joe Carter

Joe Carter is a Senior Editor at the Acton Institute. Joe also serves as an editor at the The Gospel Coalition, a communications specialist for the Ethics and Religious Liberty Commission of the Southern Baptist Convention, and as an adjunct professor of journalism at Patrick Henry College. He is the editor of the NIV Lifehacks Bible and co-author of How to Argue like Jesus: Learning Persuasion from History's Greatest Communicator (Crossway).