BBB Auto Club provides emergency road service and other services to its members.BBB Auto Club charges a higher membership fee to new members than it charges to members who are renewing their membership.When asked to explain this pricing policy,the auto club president noted,"New members often sign-up prior to taking a long road trip,so we have to charge more as first-year members have higher service utilization rates." A similar phenomenon observed in insurance markets is called

Question

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The phenomenon observed in the given scenario is adverse selection, which occurs when customers with a higher risk of utilizing the service or making a claim are more likely to sign up for the service, leading to higher pricing for the entire group.

BBB Auto Club Provides Emergency Road Service and Other Services