Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then
A) the supply curve will shift to the left.
B) the supply curve will shift to the right.
C) the demand curve will shift to the left.
D) the supply curve will not be affected.

Question

Refer to the provided graph. Suppose that it shows the market for an insurance product. If something happens to worsen the adverse selection problem faced by sellers in this market, then
A) the supply curve will shift to the left. 
B) the supply curve will shift to the right. 
C) the demand curve will shift to the left. 
D) the supply curve will not be affected.

Quizplus · Accepted Answer

If adverse selection worsens, it means that high-risk individuals are increasingly likely to purchase the insurance product. This will cause the average risk level of the pool of insured individuals to increase, making the product less attractive to sellers. This will lead to a decrease in supply and a shift of the supply curve to the left.

Refer to the Provided Graph