Adverse Selection Refers to When

question 159

Multiple Choice

Adverse selection refers to when:

• A) one party to a transaction has more information than the other and this results in a bargaining dispute.
• B) one party selects the wrong strategy and they are displeased with their selection.
• C) one party to a transaction has more information than the other and transactions occur less frequently due to the information asymmetry.
• D) neither party is willing to be party to a transaction because they don't have enough information.

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Definitions:

Function

A relation between a set of inputs and allowable outputs, where each input is related to exactly one output.

Compounded Interest

Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan.

Compounded Continuously

Pertains to the situation where interest is added to the principal balance of an investment, loan, etc., at an infinite number of times within a specified time period.

Balance

The equality between the sum of the debits and credits in an account, or the stability between opposing forces.