If there were no adverse selection problems in the stock market,
A)some well-run firms would pay more to raise funds.
B)some poorly-run firms would pay less to raise funds.
C)the willingness of savers to invest in the market would be increased.
D)the volume of new stock issues would be lower.

Question

Quizplus · Accepted Answer

Adverse selection problems in the stock market can discourage savers from investing due to the fear of investing in poorly-run firms. Without these problems, savers would be more willing to invest in the market, increasing its overall attractiveness. Option A and B could be true in certain cases, but the absence of adverse selection problems alone is not sufficient to determine whether well-run or poorly-run firms would pay more or less. Option D is not necessarily true as the volume of new stock issues may depend on other factors such as the demand for funds and investor sentiment.

If There Were No Adverse Selection Problems in the Stock