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

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

  • Understanding and Finding the Deadweight Loss

    • At times, policy makers will place a binding constraint on items when they believe that the benefit from the transfer of surplus outweighs the adverse impact of deadweight loss .
    • Policy makers will place a binding price ceiling when they believe that the benefit from the transfer of surplus outweighs the adverse impact of the deadweight loss.

  • Recessions

    • Recessions generally occur when there is a widespread drop in spending (an adverse demand shock).
    • This may be triggered by various events, such as a financial crisis, an external trade shock, an adverse supply shock, or the bursting of an economic bubble .

  • Difficulty in Getting the Timing Right

    • With the complexity of modern economies and the lags inherent in macroeconomic policy instruments, a country must have the capacity to promptly identify any adverse trends in its economy and to apply the appropriate corrective measure.

  • Antitrust Laws

    • The adverse effects of these manipulations can be seen in , which underlines the economic threat monopolies pose the end consumer.
    • Antitrust law is in place to ensure such circumstances do not arise, or when they do that they are regulated appropriate to minimize adverse societal effects.

  • Global Impacts

    • To provide additional context to the global adverse effects of the sub-prime mortgage crisis, of 65 countries that record and report GDP only 11 escaped a recessionary period between 2006 and today.

  • Consequences of Banking Crises

    • There is a distinctive cyclical nature to these adverse effects, as each are interconnected in a way that creates a domino effect across the domestic economic system.

  • Government Intervention May Fix Inefficient Markets

    • But when society is adversely affected by economic inefficiency, such as when a monopoly firm raises prices to a point where people cannot afford a basic good, the government will sometimes intervene.

  • Limitations of Monetary Policy

    • A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war.

  • Keynesian Theory

    • It was an interesting time for economic speculation considering the dramatic adverse effect of the Great Depression .