In a market with an adverse selection problem
A) one side of the market has better information about the goods than the other.
B) the uninformed side of the market must choose from an undesirable selection of goods.
C) some high-quality goods are sold but fewer than would be sold in a market with perfect information.
D) all of the above

Question

Quizplus · Accepted Answer

An adverse selection problem refers to a situation where one side of the market has better information about the quality of goods than the other. As a result, the uninformed side of the market may have to choose from a limited selection of goods, which may be of lower quality than they would prefer. This also means that high-quality goods may be sold, but the overall quantity of goods sold may be lower than what would have been sold in a market with perfect information. Therefore, all of the above best describe a market with an adverse selection problem.

In a Market with an Adverse Selection Problem