adverse selection

(noun)

The process by which the price and quantity of goods or services in a given market is altered due to one party having information that the other party cannot have at reasonable cost.

Related Terms

  • moral hazard

Examples of adverse selection in the following topics:

  • Asymmetric Information: Adverse Selection and Moral Hazard

    • Asymmetric information, different information between two parties, leads to the following - adverse selection, moral hazards, and market failure.
    • Adverse selection is a term used in economics that refers to a process in which undesired results occur when buyers and sellers have access to different/imperfect information.
    • In addition to adverse selection, moral hazards are also a result of asymmetric information.
    • A lack of equal information causes economic imbalances that result in adverse selection and moral hazards.
    • Examine the concept of adverse selection in the context of imperfect information
  • Income Security Policy and Policy Making

    • That a compulsory government program, not the private market, provides unemployment insurance can be explained using the concepts of adverse selection and moral hazard.
    • Adverse selection refers to the fact that "workers who have the highest probability of becoming unemployed have the highest demand for unemployment insurance."
    • Adverse selection causes profit maximizing private insurance agencies to set high premiums for the insurance because there is a high likelihood they will have to make payments to the policyholder.
    • "A compulsory government program avoids the adverse selection problem.
  • Chapter Questions

    • Identify examples of moral hazard and adverse selection for a person buying car insurance.
  • Chapter Questions

  • A Bank Failure

    • Adverse selection becomes a problem for banks.
    • Banks implement six procedures to reduce adverse selection, which include:
    • Bank prevents adverse selection by requiring collateral.
    • Bank minimizes adverse selection by credit rationing.
    • Banks use restrictive covenants to minimize adverse selection.
  • Answers to Chapter 5 Questions

    • Adverse selection is a person knows he drives recklessly and buys insurance to protect his car.
  • Antibiotics and Selective Toxicity

    • Antibiotics are able to selectively target specific types of bacteria without harming the infected host.
    • Some antibacterials have been associated with a range of adverse effects.
    • Adverse effects range from fever and nausea to major allergic reactions, including photodermatitis and anaphylaxis.
    • The remainder must be tested for their selective toxicities and therapeutic activities, and the best candidates can be examined and possibly modified.
    • In antibacterial production, microorganisms must be isolated, cultured, and tested for growth inhibition of target organisms and for their selective toxicity.
  • Methods of Reproducing

    • When food sources have been depleted, the climate becomes hostile, or individual survival is jeopardized by some other adverse change in living conditions, these organisms switch to sexual forms of reproduction.
    • The variations found in offspring of sexual reproduction allow some individuals to be better suited for survival and provide a mechanism for selective adaptation to occur.
    • Thus, seeds, spores, eggs, pupae, cysts, or other "over-wintering" stages of sexual reproduction ensure the survival during unfavorable times as the organism can "wait out" adverse situations until a swing back to suitability occurs.
  • Diagnosis and Treatment of Allergy

    • Allergy testing can help confirm or rule out allergies, reducing adverse reactions and limiting unnecessary avoidance and medications.
    • Allergy testing can help confirm or rule out allergies, reducing adverse reactions and limiting unnecessary avoidance and medications.
    • Small amounts of suspected allergens or their extracts are introduced to sites on the skin marked with pen or dye (the dye should be carefully selected, lest it cause an allergic response itself).
  • Informed Decisions

    • Decision making can be regarded as the mental processes (cognitive processes) resulting in the selection of a course of action among several alternative scenarios.
    • The decisive actions are taken and additional actions are taken to prevent any adverse consequences from becoming problems, which can lead to the processes of problem analysis and decision-making to begin all over again.
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