Which of the Following Is the Best Example of an Adverse

question 91

Multiple Choice

Which of the following is the best example of an adverse selection problem?

• A) Once individuals are insured, they are less likely to take efficient precautions.
• B) Individuals are unlikely to pay for something if they can receive the benefits for free.
• C) When a firm pollutes the air, families living nearby suffer the consequences.
• D) Individuals who seek to purchase health insurance have better information about their health than do insurance companies.

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Definitions:

Dividend Payout Ratio

A financial metric that measures the percentage of earnings paid to shareholders in dividends.

Profit Margin

A financial metric that measures the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency of a company in managing its costs and profit generation.

Retained Earnings

Retained earnings are the portion of a company's profits that are kept or retained within the company rather than paid out to shareholders as dividends, often used for reinvestment in the business or to pay down debt.

Marginal Tax Rate

The rate of tax applied to your next dollar of income, used in progressive tax systems where tax rates increase as income rises.