Which of the Following Is a Result of Adverse Selection

question 34

Multiple Choice

Which of the following is a result of adverse selection?

• A)The insurer's financial results will be substantially improved.
• B)Persons most likely to have losses are also most likely to seek insurance at standard rates.
• C)It is unnecessary for the insurance company to use underwriting.
• D)Insurance can be written only by the federal government.

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Definitions:

Rational Expectations

The hypothesis that individuals form predictions of the future based on available information and act on those predictions rationally.

Consumption Goods

Goods that are purchased by consumers for the purpose of consumption and not for resale.

Capital Goods

Physical assets such as buildings, machinery, and equipment used by businesses to produce goods and services.

Competitive Economy

An economic system in which businesses and individuals freely compete for consumers' money with minimal government intervention, leading to innovation and efficient market outcomes.