Adverse selection refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. This information asymmetry can lead to the less informed party being worse off and can result in market failure.

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Adverse Selection

Question 93

Multiple Choice

Adverse selection

A) refers to the private, self-interested actions that people pursue, which, when taken collectively, lead to a loss in economic surplus.
B) refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.
C) refers to the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction.
D) refers to the actions people take before they enter into a transaction so as to mislead the other party to the transaction.

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