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

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction has more information than the other party, leading to an imbalance of power and potential exploitation. This can result in reduced market efficiency as the less informed party may be hesitant to participate in transactions, leading to a decrease in market activity and a less efficient allocation of resources.

The Existence of Adverse Selection Results In