Suppose there are two types of fruit pickers. Fast pickers bring in more than 10 units of fruit per day, while the slow pickers bring in fewer than 10 units per day. Johnson Farm pays pickers a flat rate of $50 per day, and Henry Farm pays pickers $5 for every unit picked. The pickers know their productivity level, but the farms don't know a picker's productivity until he or she starts working. There will be an adverse selection problem in applications at _____.
A) Johnson Farm
B) Henry Farm
C) both farms
D) neither farm

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party has more information than the other. At Johnson Farm, both fast and slow pickers receive the same pay regardless of productivity, so slow pickers are more likely to apply, creating an adverse selection problem.

Suppose There Are Two Types of Fruit Pickers