Adverse selection in bargaining arises from: A. signaling private information to

Question

Adverse selection in bargaining arises from: A. signaling private information to other parties. B. self-selection based on private information. C. implicit contracts between the principal and the agent. D. asymmetric information held by the principal or the agent.

FancyFoods restaurant decided to introduce an all-you-can-eat buffet on Tuesdays and Wednesdays to increase business. They found that they acquired a whole new set of customers, most of whom were very big eaters. After a time, they increased the price of the buffet. FancyFoods suffered from the problem of: A. excessive high costs. B. adverse selection. C. .incentives D. implicit contracts

Explanation / Answer

D. Asymmetric information held by the principal or the agent.

(Asymmetric information can cause markets to fail).

B. Adverse selection.

(Adverse selection occurs when people with the worst characterisitcs accept the deal).

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