Which of the following is an effect of adverse selection?
A)Buyers may gain surplus they would have lost with complete information.
B)Sellers may gain surplus they would have lost with complete information.
C)Buyers and sellers may lose surplus they would have gained with more complete information.
D)Buyers may lose surplus, and sellers may gain surplus, because of the information imbalance.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more or better information than the other, leading to a loss of surplus for both buyers and sellers that could have been gained with more complete information. This is because the party with less information is at a disadvantage, often resulting in transactions that are not optimal for either party.

Which of the Following Is an Effect of Adverse Selection