Which of the Following Is an Example of Adverse Selection

question 11

Multiple Choice

Which of the following is an example of adverse selection?

• A)A homeowner with a large fire insurance policy allows the wiring in her house to deteriorate.
• B)A woman with a large life insurance policy takes up sky diving.
• C)Your brother-in-law borrows $20,000 from you to open a pizza parlor, but spends it gambling at the racetrack instead.
• D)A man with a bad heart condition buys a large life insurance policy.

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Definitions:

Demand Uncertainty

The unpredictability of consumer demand for a product or service, making it difficult for businesses to forecast accurately and plan inventory levels or production schedules.

Supply Uncertainty

The risk of unpredictability in obtaining required materials or products from suppliers, which can affect production schedules, costs, and market responsiveness.

Exchange Rates

The value of one currency expressed in terms of another currency, which plays a critical role in international trade and finance.

Simulation Methods

Techniques used to imitate the operation of real-world processes or systems over time, often for the purpose of analysis or training.