The existence of adverse selection results in
A) reduced market efficiency.
B) an increase in the likelihood of moral hazard.
C) an increase in market transactions.
D) higher transactions costs.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction has more information than the other party, leading to a situation where the party with less information is at a disadvantage. This can result in reduced market efficiency, as the party with less information may be less likely to participate in the transaction, or may only participate if they are offered a higher price.

The Existence of Adverse Selection Results in