In a market with an adverse selection problem:
A. one side of the market has better information about the goods than the other.
B. the uninformed side of the market must choose from an undesirable selection of goods.
C. some high-quality goods are sold, but fewer than would be sold in a market with perfect information.
D. All of these
Answer: D
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Recall the Application. Greece faced a major financial crisis in 2010 as its budgetary imbalance became quite severe. Since Greece is a member of the Euro-zone, it could no longer ________ as a potential solution to its financial problems
A) depreciate its currency B) raise taxes C) reduce wages and prices D) cut spending
Private information
A) creates moral hazard but eliminates adverse selection. B) creates adverse selection but eliminates moral hazard. C) creates both moral hazard and adverse selection. D) eliminates both moral hazard and adverse selection.