-Which of the Following May Be Explained by Adverse Selection

question 24

Multiple Choice

-Which of the following may be explained by adverse selection?

• A)When banks raise the interest rate on loans, high-risk applicants leave the market.
• B)When health insurance companies decrease insurance charges but increase deductibles, less healthy people are more willing to purchase insurance.
• C)As the cost of insurance rises, low-risk applicants reduce their coverage.
• D)Products are sold at prices that reflect their true value.
• E)Loan companies do not require down payments.

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Definitions:

Standard Deviation

An indicator of the extent of variation or spread among a collection of numbers, showing the degree to which these numbers deviate from their average.

Wireless Phone Company

A service provider that offers mobile telecommunication services, including voice and data communication, without requiring fixed lines.

Random Order

An arrangement or sequence of items where each item's position is determined by chance, ensuring no predetermined pattern.

Probability

The degree of likelihood or chance that a specific outcome will take place.