Which of the following is NOT true of adverse selection?
A)It would not exist in a world of perfect information.
B)It arises because borrowers typically know more than lenders.
C)It describes a lender's problem of distinguishing the good-risk applicants from the bad-risk applicants.
D)It describes a lender's problem in verifying borrowers are using their funds as intended.

Question

Quizplus · Accepted Answer

Adverse selection refers to the problem of distinguishing between good-risk and bad-risk applicants before a transaction occurs, not verifying fund usage after the transaction.

Which of the Following Is NOT True of Adverse Selection