Adverse selection typically results in fewer market transactions because it involves the asymmetry of information between buyers and sellers, which makes it difficult to distinguish between high and low-quality goods or services. This can lead to only the low-quality options being offered or high-quality options being priced too high, discouraging market participation.

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Adverse Selection

Question 47

Multiple Choice

Adverse selection:

A) increases the efficiency of most markets.
B) usually causes prices to adjust faster than they otherwise would.
C) makes it easier for all customers to find what they want.
D) results in fewer market transactions.

Correct Answer: