Adverse selection and moral hazard do not affect the efficiency of the market.True

Question

Quizplus · Accepted Answer

Adverse selection and moral hazard can both lead to market inefficiencies. Adverse selection occurs when one party in a transaction has more information than the other and uses that information to their advantage, leading to market failure. Moral hazard occurs when one party takes risks because they know they are protected from the consequences, which can also lead to market failure. Therefore, both adverse selection and moral hazard can affect the efficiency of the market.

Adverse Selection and Moral Hazard Do Not Affect the Efficiency