Which of the following is a market-based solution to the problem of adverse selection?
A) Corrective taxes
B) Signaling
C) Hedging
D) Corrective subsidies

Question

Quizplus · Accepted Answer

Signaling is a market-based solution to the problem of adverse selection. It involves sending a signal or providing information to potential buyers or sellers to distinguish high-quality products or services from low-quality ones. By doing so, buyers are better able to assess what they are buying and sellers can differentiate themselves from competitors. Corrective taxes and subsidies are forms of government intervention and not considered market-based solutions. Hedging is a risk management strategy used in finance and also not directly related to addressing adverse selection.

Which of the Following Is a Market-Based Solution to the Problem