One effect of adverse selection in a market is that the equilibrium quantity of the product may be smaller than it would have been if there were no asymmetric information problems.

Question

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Adverse selection can lead to a situation where higher quality goods are driven out of the market due to the presence of potentially low-quality goods. As a result, buyers become more cautious and may reduce their demand. The potential decrease in demand can lead to a reduction in the equilibrium quantity of the product. Therefore, adverse selection can lead to lower market outcomes as compared to the case where there are no information problems.

One Effect of Adverse Selection in a Market Is That