Asked by Morgan Kollman on Jul 09, 2024
Verified
In the market for newly developed real estate,adverse selection could occur when
A) The buyers can observe and detect all the features of the properties
B) The buyers know more about the property than the developers
C) The developers of the property know more about the properties than the buyers
D) Neither parties knows about the item properly
Adverse Selection
A situation in which one party in a transaction has more information than the other, often leading to an inefficient market outcome.
Real Estate
Property consisting of land or buildings, which can be bought, sold, or leased for residential, commercial, or industrial use.
Buyers
Individuals or entities that make a purchase of goods or services.
- Acquire knowledge on the concept of adverse selection and its criticality in the insurance business.
- Review situations that exemplify the deleterious effects of adverse selection in tangible contexts.
Verified Answer
SA
Shayoom Al-bloushiiJul 16, 2024
Final Answer :
C
Explanation :
Adverse selection occurs when one party possesses more information about the transaction than the other party. In the case of newly developed real estate, the developers are likely to have more information about the properties than the buyers, especially if the buyers are unable to observe or detect all the features of the properties. This information asymmetry can lead to adverse selection, with buyers potentially making a poor choice due to their lack of knowledge about the property. Thus, choice C is the best answer.
Learning Objectives
- Acquire knowledge on the concept of adverse selection and its criticality in the insurance business.
- Review situations that exemplify the deleterious effects of adverse selection in tangible contexts.
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