Which Outcome May Well Result from Severe Adverse-Selection Problems

question 132

Multiple Choice

Which outcome may well result from severe adverse-selection problems

• A)Too few good used cars are offered for sale.
• B)Wages are too low relative to equilibrium levels.
• C)Too many good drivers buy too much automobile insurance.
• D)Prices for inferior goods are too low.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income.

Percentage Change

A mathematical calculation that shows how much a quantity has increased or decreased as a percentage of its previous value.

Net Operating Income

The profit generated from normal business operations, excluding expenses from interest and taxes.

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, indicating how much contributes to covering fixed costs and generating profit.