The Problem of Adverse Selection Helps to Explain

question 69

Multiple Choice

The problem of adverse selection helps to explain

• A) which firms are more likely to obtain funds from banks and other financial intermediaries, rather than from securities markets.
• B) why collateral is an important feature of consumer, but not business, debt contracts.
• C) why direct finance is more important than indirect finance as a source of business finance.
• D) only A and B of the above.

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Definitions:

Age-Earnings Data

Information that correlates individuals' ages with their earnings to analyze economic patterns.

Higher-Educated Workers

Employees who have completed advanced levels of formal education, typically resulting in higher skill levels and wages.

Market Imperfection

Any deviation from the ideal conditions of a fully competitive market, which may lead to inefficient market outcomes.

Persistent Wage Differentials

The continuous difference in wages across sectors, regions, or occupations due to factors like differences in skill levels, working conditions, or geographic location.