Which of the following is and example of a market failure caused by asymmetric information?
A)The generation of electricity from fossil fuels creates an externality.
B)Automobile dealers offer warranties on their used cars.
C)Low risk individuals choose not to buy insurance.
D)High risk individuals pay higher premiums than low risk individuals.

Question

Quizplus · Accepted Answer

This is an example of adverse selection, where individuals with more information about their likelihood of needing medical care are more likely to purchase insurance, leaving a pool of insured individuals who are likely to utilize medical care, driving up costs.

Which of the Following Is and Example of a Market