Which of the Following Is an Example of Adverse Selection

question 159

Multiple Choice

Which of the following is an example of adverse selection?

• A)The odds of a fire rise after a building is insured because the person with fire insurance is likely to pay less attention to fire hazards.
• B)Someone who did not install fire alarms and a sprinkler system in a building he owns buys insurance for the building.
• C)Someone with automobile insurance drives more recklessly than someone without insurance.
• D)People prefer to buy new cars rather than used cars.

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Definitions:

Illegal Penalty

A punishment or consequence for an action that is not legally authorized or that exceeds the bounds set by legal statutes.

Power of Avoidance

The legal ability to declare a contract null and avoid its obligations due to reasons such as fraud, misrepresentation, or other substantive grounds.

Contractual Capacity

The lawful capacity of an individual to engage in a contract that is enforceable.

Disaffirmed

The legal act of declaring a contract or agreement void and nullifying its effects, often in the context of contracts entered into by minors.