Answer to Question 1
Ted valued each unit of Good X at 2.50, while the seller valued it at 2.30. If Ted had perfect information about the quality of the good, trade would have taken place at a price between 2.30 and 2.50. However, because Ted was unaware of the quality of the good and had a lower value for defective units of the good, he was willing to pay only 2 per unit. At 2, the seller would not be willing to give him good units of the good because he he had a higher value for those units. As a result, Ted would end up buying defective units of Good X. Such a phenomenon is commonly known as adverse selection.
Answer to Question 2
C