Which of the following is not true of adverse selection?
A)It can result when both parties to a transaction have little information about the quality of the goods involved.
B)It can cause the quality of goods traded to fall, if quality detection costs are high.
C)It can be a difficult problem to overcome, because it is not individually rational for the transactor with the superior information to provide a truthful and complete disclosure.
D)All of the above are true.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction has more information about the quality of the goods involved than the other party. This can lead to a situation where the party with the superior information is able to take advantage of the other party, resulting in a lower quality of goods being traded.

Which of the Following Is Not True of Adverse Selection