A situation where bad quality drives good quality out of a market is known as

Question

Quizplus · Accepted Answer

Adverse selection occurs when low-quality goods or services drive high-quality ones out of the market. This happens because low-quality products can be offered at a lower price, making it difficult for high-quality products to compete. As a result, consumers may switch to the cheaper low-quality product, and the market becomes dominated by low-quality products. This phenomenon is often observed in the market for insurance, where people with a higher risk of making claims are more likely to purchase insurance, leaving the insurance company with a higher proportion of riskier customers and increasing the likelihood of claims.

A Situation Where Bad Quality Drives Good Quality Out of a Market