When the government mandates participation in a program to solve an information asymmetry problem, it is trying to prevent:
A)moral hazard.
B)adverse selection.
C)building a reputation.
D)illegal screening.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more or better information than the other party, typically leading to a market failure. Government-mandated participation in programs, such as universal health insurance, is often aimed at preventing adverse selection by ensuring that both high-risk and low-risk individuals participate, thus balancing the risk pool and making the system more sustainable.

When the Government Mandates Participation in a Program to Solve