Which of the Following Best Describes How Adverse Selection Affects

question 100

Multiple Choice

Which of the following best describes how adverse selection affects the price of insurance?

• A)Since insurers can acquire complete information regarding the riskiness of borrowers,they can charge actuarially fair premiums.
• B)Since firms may have private information about how risky they are,insurers must raise premiums to compensate for the existence of this uncertainty.
• C)Since purchasing insurance reduces the firm's incentive to avoid risk,insurers must raise premiums to compensate for the increase in risk.
• D)Since purchasing insurance reduces the firm's risk,insurers can lower premiums to compensate for the reduction in risk.
• E)Since high premiums will drive away the low-risk firms,insurers must lower premiums in order to attract low-risk borrowers.

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Definitions:

A Clique

A small, exclusive group of individuals characterized by shared interests or common goals, often leading to exclusionary behavior.

Chain Pattern

A sequence or arrangement of events, ideas, or objects linked together in a linear or logical order.

All-Channel Network

A communication structure in which all members are equally connected and can share information freely among themselves.

Wheel Pattern

refers to a specific arrangement or design that resembles a wheel, often used in various contexts such as crafting, architecture, or planning.