A consequence of adverse selection is:
A) buyers gain surplus they would have lost with complete information.
B) sellers gain surplus they would have lost with complete information.
C) transactions do not take place that would have been possible if the parties had the same information.
D) buyers make irrational decisions because they lack information.

Question

Quizplus · Accepted Answer

Adverse selection can lead to a situation where transactions do not take place because buyers and sellers have different information about the quality or value of the product or service being exchanged. This can result in a situation where buyers are unwilling to pay a higher price for a product because they are uncertain about its quality and sellers are unwilling to sell at a lower price because they know the product is of better quality than perceived by the buyer. This can result in a market failure and a loss of potential gains from trade.

A Consequence of Adverse Selection Is