Which of the following arguments is based on the concept of adverse selection?
A) The U.S. Military needs higher pay to attract the best personnel.
B) Private medical insurance companies seek to exclude those most likely to need healthcare.
C) Only the national government can successfully conduct macroeconomic stabilization policies.
D) Mosquito abatement is a public good.

Question

Quizplus · Accepted Answer

Adverse selection refers to the situation where one party in a transaction has more information than the other and uses that information to their advantage. In the case of private medical insurance companies, they may exclude those most likely to need healthcare (such as individuals with preexisting conditions) to minimize their own costs and risk. This is an example of adverse selection in the insurance market.

Which of the Following Arguments Is Based on the Concept