Adverse Selection Is Said to Exist When an Individual

question 21

Multiple Choice

Adverse selection is said to exist when an individual

• A)selects a product which has adverse externalities.
• B)is not able to take advantage of another individual.
• C)purchases a lot of insurance because he/she knows that he/she is at high risk.
• D)has the incentive to,and is able to,shift costs to another individual.
• E)is averse to certain products.

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Definitions:

Withdraw

The act of removing funds from a bank account, or the process of pulling out of an agreement or investment.

Inherited

Property or assets received from an ancestor or predecessor typically through a will or succession.

Annuity Due

A series of equal payments made at the beginning of consecutive periods over a fixed length of time.

Interest Rate

The cost incurred by a borrower from a lender for the use of assets, represented as a proportion of the principal.