Which of the Following Is Not an Example of an Adverse

question 69

Multiple Choice

Which of the following is not an example of an adverse selection problem?

• A)A homeowner purchases a refrigerator that the seller knows has a history of leaking.
• B)A highly productive worker quits her job after a salary cut knowing that she can make more at a different job.
• C)A major league baseball player performs poorly in his second season after signing a multi-million dollar contract.
• D)A contractor uses low quality materials for construction but charges for higher quality materials.

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Definitions:

Event

An occurrence or happening, particularly one of significance in statistics or probability.

Action

The process or state of acting or being active.

Outcome

The result or effect of an action or experiment.

Addition Rule

Combined probability of mutually exclusive outcomes is the sum of the individual probabilities.