The adverse selection problem is a likely explanation for the fact that
A) a few months after a new car is purchased,its value decreases very little.
B) some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders.
C) people in average health may be discouraged from buying health insurance by the high price.
D) gifts can be interpreted as signals.

Question

Quizplus · Accepted Answer

Adverse selection occurs when individuals with higher risk are more likely to purchase insurance, leading to higher insurance premiums. In the case of health insurance, individuals with pre-existing health conditions or illnesses may be more likely to purchase insurance, leading to higher premiums for everyone. This can discourage individuals in average health from buying insurance, as they would be paying a higher price for coverage they may not need.

The Adverse Selection Problem Is a Likely Explanation for the Fact