What causes adverse selection problems?
A)Buyers have unrealistic expectations.
B)Sellers have private information.
C)Sellers are not interested in profit.
D)Buyers are not interested in low prices.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other, leading to an unequal distribution of risk. In this scenario, the seller has private information that the buyer may not be aware of, such as the true quality or condition of the product being sold. This can result in the buyer paying too much for a low-quality product, or the seller not receiving a fair price for a high-quality product. Therefore, choice B is the correct answer. The other options do not necessarily cause adverse selection problems.

What Causes Adverse Selection Problems