Adverse selection may lead to
A)owners of used cars choosing to keep them rather than sell them at the low price that skeptical buyers are willing to pay.
B)wages being stuck above the level that balances supply and demand, resulting in unemployment.
C)buyers with low risk choosing to remain uninsured because the policies they are offered fail to reflect their true characteristics.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Adverse selection is a situation in which one party in a transaction has more information than the other party, leading to an imbalance of information. This can lead to all of the above outcomes: owners of used cars may choose to keep them rather than sell at a low price due to skeptical buyers being aware of potential defects, wages may be stuck above the equilibrium level if workers have specialized skills or information that employers are not aware of, and buyers with low risk may remain uninsured if the policies they are offered do not provide adequate coverage or reflect their actual risk level.

Adverse Selection May Lead to