The Significant Difference Between Adverse Selection Problems and Moral Hazard

question 29

Multiple Choice

The significant difference between adverse selection problems and moral hazard problems is

• A) that adverse selection refers to bad luck,moral hazard refers to bad behaviors.
• B) that adverse selection applies to markets for goods,moral hazard applies to markets for services.
• C) only identifiable after an action has been taken.
• D) that in adverse selection one group of people starts out at a higher risk,while in moral hazard problems,people incur additional risks.

---

Definitions:

Floatation Costs

Expenses incurred by a company during the process of issuing new securities, including legal, accounting, and underwriting fees.

Common Stock

Common Stock is a type of equity ownership in a corporation, entitling holders to vote on corporate matters and receive dividends.

Dividend Growth

The increase in the amount of the dividend payments issued by a company over time, indicating the company's growth and stability.

Dividend Growth

The rate at which a company's dividend payments to shareholders increase over time, indicating potential profitability and stability.