When individuals belonging to the informed side of a market self-select and harm those belonging to the uninformed side,the _____ problem occurs.

Question

Quizplus · Accepted Answer

The situation described in the question is a classic example of adverse selection. Adverse selection occurs when individuals with better information or knowledge about a product or service (in this case, the informed side of the market) self-select, and those with less information (the uninformed side of the market) are harmed as a result. This can lead to a market failure where the uninformed side either chooses not to participate or pays higher prices than they should.

When Individuals Belonging to the Informed Side of a Market