Chapter EMC, Problem 2MCQ

To determine

To state: Concept of adverse selection.

Answer to Problem 2MCQ

The correct option is D, i.e. private information is available to all.

Adverse selection happens when one person has more knowledge about the way things are than what other people know. Adverse selection happens, for example, when sellers offer items of mainly low quality for sale, and when the people with the maximum need for insurance are those most likely to buy it. So, the correct option is D i.e. private information is available to all.

Explanation of Solution

Adverse selection happens when one person has more knowledge about the way things are than what other people know. Adverse selection happens, for example, when sellers offer items of mainly low quality for sale, and when the people with the maximum need for insurance are those most likely to buy it. So, the correct option is D i.e. private information is available to all.