The problem of adverse selection:
A)occurs when sellers (who know more than buyers about the quality of the product)deliberately select inferior products to sell.
B)is also referred to as the moral hazard problem.
C)can result in an overall increase in the gains from trade.
D)occurs when an employer fires the wrong person.

Question

Quizplus · Accepted Answer

Adverse selection occurs when sellers have more information than buyers about the quality of a product or service. This can lead to a situation where sellers who have inferior products or services may be more likely to sell them, while sellers with superior offerings may be less inclined to participate in the market or charge higher prices. This can result in a breakdown in the market and an overall reduction in the gains from trade. The other options given are not accurate descriptions of adverse selection.

The Problem of Adverse Selection