The presence of adverse selection in a market causes:
A) some transactions to fail to take place.
B) a deadweight loss.
C) market failure.
D) All of these statements are true.

Question

Quizplus · Accepted Answer

Adverse selection leads to a higher likelihood of market failure, in which some transactions fail to occur (A), which causes a deadweight loss (B). Therefore, all the statements made in options A, B, and C are true when the market suffers from adverse selection, making option D the correct answer.

The Presence of Adverse Selection in a Market Causes