A consequence of adverse selection is:
A) buyers and sellers may lose surplus they would have gained with more complete information.
B) too many transactions occur of low value.
C) sellers violate the law when giving false information to buyers.
D) None of these statements are true.

Question

Quizplus · Accepted Answer

Adverse selection can lead to the loss of potential surplus that would have been gained if both parties had complete information. This occurs because buyers are hesitant to pay a higher price, while sellers hesitate to accept a lower price, resulting in a lower number of transactions overall. This in turn results in a potential loss of surplus. The other options are not necessarily consequences of adverse selection.

A Consequence of Adverse Selection Is