Asked by Chelsea Solis on Jul 18, 2024

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Asymmetric information always results in adverse selection.

Asymmetric Information

A situation where one party to a market transaction has more information about a product or service than the other. The result may be an under- or overallocation of resources.

Adverse Selection

A situation in insurance and finance where individuals with higher risks are more likely to purchase or participate in a plan, leading to higher than expected costs for insurers or lenders.

  • Recognize the correlation between asymmetric information, adverse selection, and market outcomes.
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AC
Ainsley ChildressJul 21, 2024
Final Answer :
False
Explanation :
Asymmetric information can lead to adverse selection, but it can also result in other market failures like moral hazard. Adverse selection is just one possible outcome of asymmetric information.