Adverse selection:

Question

Adverse selection:

Quizplus · Accepted Answer

Adverse selection results in fewer market transactions because it means that buyers and sellers with lower-quality products are more likely to participate in the market, while those with higher-quality products may not. This can lead to a situation where buyers are only willing to pay a lower price because they are uncertain about the quality of the product being sold, while sellers of high-quality products choose not to participate because they cannot command a high enough price to make it worthwhile. This can ultimately result in a market failure.

Adverse Selection