Adverse Selection and the Lemons Problem Quiz

What is the main issue buyers face in a market with adverse selection?

• They always pay more than the average price.

• They are unable to distinguish between high-quality and low-quality products.

• They can easily identify high-quality products.

• They have more information than sellers.

According to George Akerlof's study, what happens to honest sellers in a market with asymmetric information?

• They are pushed out by dishonest sellers.

• They thrive and dominate the market.

• They can easily identify lemons.

• They have an advantage over dishonest sellers.

How do dishonest sellers benefit in a market with asymmetric information?

• They are unable to sell their products.

• They have no advantage over honest sellers.

• They can exploit the information gap to sell low-quality products.

• They can sell high-quality products at a premium.

What is one solution to mitigate adverse selection in markets?

• Reducing the number of sellers in the market.

• Allowing sellers to have more information than buyers.

• Implementing lemon laws and third-party verifiers.

• Increasing the average price of all products.

In the context of insurance, what is a potential outcome of adverse selection?

• All clients pay less than the average price.

• Insurance companies can easily identify high-risk clients.

• Insurance companies end up with mostly low-risk clients.

• Insurance companies end up with an excess of high-risk clients.