Which of the following is NOT a solution to adverse selection when buyers have private information?
A)Sellers can use information that is related to buyers' likely costs.
B)The penalty for being a high-cost customer is reduced.
C)The government can increase information, offer subsidies, enforce mandates, or provide insurance.
D)Sellers can offer different contracts so that buyers separate themselves.

Question

Quizplus · Accepted Answer

Reducing the penalty for being a high-cost customer would not address adverse selection, as it does not provide a solution for how to identify high-cost customers in the first place. The other options (A, C, and D) all offer potential solutions to adverse selection by addressing the issue of private information among buyers.

Which of the Following Is NOT a Solution to Adverse