Which of the Following Is Not True of Adverse Selection

question 11

Multiple Choice

Which of the following is not true of adverse selection?

• A)It can result when one of the parties in a transaction has little information about the quality of the goods involved.
• B)It can cause the quality of the goods traded to decline if quality detection costs are high.
• C)It can be a difficult problem to overcome because it is not individually rational for the party with more information to provide a truthful and complete disclosure.
• D)It occurs in the used-car market but not in the market for insurance.
• E)It drives out the high-quality products and only the low-quality products are left in a market.

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Definitions:

Time Inconsistency

A situation where a decision-maker's preferences change over time, often leading to a conflict between long-term goals and short-term gratification.

Package Sizes

The dimensions or amount of product contained within a package, affecting consumer choices and inventory management.

Framing Effects

The influence on decision making prompted by the way information is presented, rather than just the information itself.

Self-Serving Bias

The common human tendency to attribute positive events to one's own character but attribute negative events to external factors.