How adverse selection leads to market failure
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One important case of market failure is caused by imperfect information. Adverse selection occurs when buyers and sellers have different amounts of information about the good for sale. A common example is when individuals have more information about an automobile. Give another example of adverse selection and describe at least 2 ways to resolve the information problem.
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Solution Summary
A definition of adverse selection and an example of how adverse selection leads to services being sold at the wrong price. Two ways to resolve the adverse selection problem are given.
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Adverse selection means that because of assymetic information between the buyer and seller, a product is sold at the "wrong" price. For example, my twin brother and I bought life insurance from the same ...
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