The problem of adverse selection:
A)occurs when sellers (who know more about the quality of what they are selling than buyers) 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 about the quality of the product or service being sold than buyers. This can lead to sellers intentionally selling inferior products to unsuspecting buyers. This can ultimately lead to a suboptimal outcome for both parties, as buyers may end up with a lower quality product than they expected, while sellers may miss out on potential buyers who are willing to pay more for a higher quality product.

The Problem of Adverse Selection