Which of the following is NOT an example of the adverse selection problem?
A) Buyers in a market for used cars must choose from an undesirable selection of used cars.
B) An insurance company must choose one price for its coverage for both high-cost and low-cost people.
C) Commercial banks would rather use credit rationing than raising interest rates in the presence of excess demand for loans.
D) An insured motorist drives more recklessly.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In choice D, the issue described is moral hazard, not adverse selection. Moral hazard occurs after a transaction has taken place and is related to changes in behavior as a result of being insured or protected.

Which of the Following Is NOT an Example of the Adverse