Which of the Following Is an Application of the Adverse-Selection

question 7

Multiple Choice

Which of the following is an application of the adverse-selection problem?

• A)a customer driving more recklessly after buying car insurance.
• B)a teenager "hanging out" with friends his or her parents do not approve of.
• C)shareholders offering a high-powered incentive contract to a manager.
• D)an auto repairman claiming that the repairs are more extensive than they actually are.

---

Definitions:

Total

The sum or aggregate amount resulting from the addition of individual numbers, quantities, or items, often representing a final sum in accounting and mathematics.

Gross Sales

The total sales revenue from goods or services before any deductions for returns or discounts.

Direct Expense

Expenses that can be directly attributed to the production of specific goods or services, such as materials and labor.

Sales Salaries

Compensation paid to employees directly involved in the sales function of a business, typically comprising both base salary and commissions.