Adverse selection can cause attractive trading partners to be driven from a market by unattractive trading partners,whose presence alters prices at which attractive trading partners could trade.This unfortunate result is known as:
A) market unraveling.
B) signal confusion.
C) moral hazard.
D) conspicuous consumption.

Question

Quizplus · Accepted Answer

Adverse selection can lead to a situation where only the unattractive trading partners remain in the market, driving out the attractive ones due to the high prices caused by adverse selection. This process is known as market unraveling, and it can cause a collapse in the market if left unchecked.

Adverse Selection Can Cause Attractive Trading Partners to Be Driven