The solutions to adverse selection in a market where buyers have private information focus on
A)reducing buyer choice so that customers are forced into purchasing the product whether they need it or not.
B)raising market price so that sellers can cover costs of all customers, including high-cost customers.
C)helping sellers get more information about their customers so they can distinguish between high- and low-cost customers.
D)reducing seller costs so that price will cover costs.

Question

Quizplus · Accepted Answer

Adverse selection occurs when buyers have information that sellers do not have, which can lead to the selection of poor-quality or high-cost products. The best solution to adverse selection is to help sellers get more information about their customers so they can distinguish between high- and low-cost customers. This can be achieved through various methods such as screening, signaling, or pricing strategies that differentiate between different types of customers. By obtaining information about their customers, sellers can then adjust their product offerings and prices to better meet the needs of their target customers, reducing the negative impact of adverse selection.

The Solutions to Adverse Selection in a Market Where Buyers