Adverse selection describes the situation that occurs when
A) people have perfect information.
B) high-quality products are driven from the market by low-quality products due to imperfect information.
C) actions that were expected to happen do not occur.
D) low-quality products are driven from the market by high-quality products because of imperfect information.

Question

Quizplus · Accepted Answer

Adverse selection occurs when there is asymmetric information between buyers and sellers, leading to high-quality products being driven out of the market by low-quality products because buyers cannot accurately assess the quality of a product before purchasing.

Adverse Selection Describes the Situation That Occurs When