Indicate whether the statement is true, false, or unclear, and justify your answer.In some markets, adverse selection develops over time as customers learn about their own risk levels.
Indicate whether the statement is true, false, or unclear, and justify your answer.In some markets, adverse selection develops over time as customers learn about their own risk levels.
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter19: The Problem Of Adverse Selection
Section: Chapter Questions
Problem 10MC
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Question
Indicate whether the statement is true, false, or unclear, and justify your answer.
In some markets, adverse selection develops over time as customers learn about their own risk levels.
Expert Solution
Step 1
Adverse selection refers the situation where there is a lack of information (asymmetric information to the buyers and sellers) in the market before an economic transaction take place. Thus, adverse selection develops over time as customers learn more about the quality of the product and their own risk levels.
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