Which of the Following Is an Example of an Adverse

question 131

Multiple Choice

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

• A) A customer purchases four apples, two of which are bruised.
• B) A card shop puts its Halloween merchandise on sale on November 1st.
• C) A young worker is fired after she is late for work three times in one month.
• D) A man whose father had a heart attack wants to increase his life insurance coverage.

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Definitions:

Rent-seeking

It involves seeking to increase one's share of existing wealth without creating new wealth, often through manipulation or exploitation of the economic environment.

Public Choice Theory

An economic theory that applies principles of economics to analyze political behavior and decision-making.

Government Failure

Occurs when the government becomes the tool of the rent seeker and the allocation of resources is made even less efficient by the intervention of government.

Profit-maximizing Number

The output level at which a firm achieves the highest possible profit, where marginal cost equals marginal revenue.