The presence of adverse selection:
A)reduces the efficiency of markets.
B)increases the efficiency of markets.
C)does not affect the efficiency of markets.
D)makes the buyer less efficient and the seller more efficient.

Question

Quizplus · Accepted Answer

Adverse selection reduces the efficiency of markets because it leads to a situation where products of lower quality are more likely to be sold, as sellers have more information about the product quality than buyers. This can lead to market failure as good quality products are driven out of the market.

The Presence of Adverse Selection