Adverse Selection Resulting in a Low-Quality Equilibrium
In some instances of adverse selection, instead of a complete market collapse, an equilibrium can be established where only lower-quality goods are traded. [1] This outcome represents a market failure because the selection is unfavorable for buyers, and it results in a Pareto inefficient allocation, as beneficial trades involving high-quality goods do not happen. [1]
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Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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