A consequence of adverse selection for the insurance market is that:
A)risk-seeking individuals typically pay higher premiums than risk-averse individuals.
B)everyone ends up paying higher premiums.
C)risk-averse individuals typically pay higher premiums than risk-seeking individuals.
D)everyone ends up paying lower premiums.

Question

Quizplus · Accepted Answer

Adverse selection occurs when there is asymmetric information between buyers and sellers, leading to higher-risk individuals being more likely to purchase insurance, which in turn causes insurers to raise premiums for everyone to cover the increased risk.

A Consequence of Adverse Selection for the Insurance Market Is