Adverse selection occurs when a sales offer attracts the kinds of customers that the seller does not want.

Question

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Adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In the context of sales offers, it can attract customers who are less desirable to the seller, such as those who are more likely to make claims on insurance or return products.

Adverse Selection Occurs When a Sales Offer Attracts the Kinds