Adverse selection represents a case where

Question

Question: Adverse selection represents a case where

Options:

1. An insured attempts to obtain coverage at substandard rates
2. Individuals who are poorer than average risks will attempt to obtain insurance at standard rates
3. The federal government must provide coverage
4. A buyer of an interest rate futures contract loses money as interest rates rise
5. An employer is held responsible for the actions of his/her employees

Answer 1

2. Individuals who are poorer than average risks will attempt to obtain insurance at standard rates

Adverse selection represents a case where Individuals who are poorer than average risks will attempt to obtain insurance at standard rates.

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More information:

Adverse selection is when sellers have information that consumers do not have, or vice versa, about a particular aspect of product quality.

Example: It represents a case where Individuals who are poorer than average risks will attempt to obtain insurance at standard rates.