An example of adverse selection is
A)purchasing a new car sight unseen based on the recommendation of a neighbor.
B)high health-insurance premiums resulting from the poor health of people who buy policies.?
C)suppliers who charge more for better quality clothing than for lower quality clothing.
D)being talked into buying a low-quality item because the price is lower.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party in a transaction has more or better information than the other party, leading to the latter being disadvantaged. In this case, it refers to high health-insurance premiums resulting from the poor health of people who buy policies. The insurance company has less information about the health of these individuals and must charge higher premiums to cover the expected costs of healthcare.

An Example of Adverse Selection Is