Adverse Selection Is the Tendency for People Who Accept Contracts

question 84

Multiple Choice

Adverse selection is the tendency for people who accept contracts to be those who

• A) buy goods and then regret it later.
• B) buy goods for more than their own reservation price.
• C) want to avoid the lemons problem.
• D) plan to use private information to the disadvantage of the less well-informed party.
• E) engage in a number of searches larger than that specified in the contract.

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Definitions:

Demand for Good

Demand for good refers to the quantity of a product or service that consumers are willing and able to purchase at various prices during a given period.

Equilibrium Quantity

Equilibrium quantity is the quantity of goods or services supplied and demanded at the equilibrium price, where the quantity demanded equals the quantity supplied, leading to market stability.

Demand Decreases

A situation where the desire or need for a product or service declines, often leading to lower prices and adjustments in supply.

Supply Increases

Occurs when the quantity of a good or service that a market can offer rises.