If Adverse Selection Exists in a Market

question 49

Multiple Choice

If adverse selection exists in a market,

• A) it increases consumer surplus but reduces producer surplus.
• B) it reduces consumer and producer surplus.
• C) it reduces producer surplus but has no impact on consumer surplus.
• D) it increases both consumer and producer surplus.

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Definitions:

Current Ratio

A liquidity ratio that measures a company’s ability to pay short-term obligations or those due within one year, calculated as current assets divided by current liabilities.

Inventory Turnover

A ratio that measures the number of times inventory is sold and replaced over a certain period, indicating the efficiency of inventory management.

Return on Assets

A financial ratio that measures the profitability of a company in relation to its total assets.

Earnings Per Share

A profitability measure that calculates the amount of net income earned per share of a company's outstanding stock.