Which of the following is an example of an adverse selection problem?
A) A customer purchases four apples,two of which are inedible.
B) A card shop puts its Halloween merchandise on sale on November 1st.
C) A young worker is fired after she is late for work three times in one month.
D) A man whose father had a heart attack wants to increase his life insurance coverage.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party has more information than the other party in a transaction. In this case, the man whose father had a heart attack has information about his family's health history that the insurance company does not have. This could lead to the insurance company offering him a policy at a higher premium or denying coverage altogether because they perceive him to be at a higher risk for heart disease.

Which of the Following Is an Example of an Adverse