Adverse selection:
A. refers to the tendency for people with higher risk to be drawn toward insurance.
B. can result in failure to complete transactions that would have been possible if both sides had the same information.
C. occurs when buyers and sellers have different information about the riskiness of a situation.
D. All of these statements are true.
Answer: D
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Suppose a Cournot oligopoly is operating in a market where demand is linear and marginal costs are constant. We can conclude that the total output supplied is
a. 1/3 of the perfectly competitive output. b. 1/2 of the perfectly competitive output. c. 2/3 of the perfectly competitive output. d. equal to the competitive output.
If your cumulative Grade Point Average (GPA) after two years of college is 3.0, and your grades for the current semester average 3.5, what will happen to your cumulative GPA? Explain the similarity of this example to the case of marginal cost and average cost.
What will be an ideal response?
The weights used in calculating the firm's weighted-average cost of capital are equal to the proportion of debt and equity ____
a. used to finance the project b. used to finance the projects undertaken last year c. in the industry average capital structure d. in the firm's target capital structure e. none of the above
A perfectly competitive firm does not try to raise its price above the market price because
A. its competitors would not permit it. B. this would be considered unethical price chiseling. C. its demand curve is inelastic, so total revenue will decline. D. it would not be able to sell its output.