Part 1Match (by number) each concept with its description:Part 2[table]
Concept | Adverse selection | Upper H i dd e n minus i nformat i on probl e m b e for e a transact i on; h i gh e r minus r i sk or wors e minus than minus av e rag e part i c i pants ar e mor e l i k e ly to s e l e ct i nto th e mark e t left parenthesis e .g., h i gh minus r i sk i nd i v i duals ar e mor e l i k e ly to buy i nsuranc e right parenthesis .Hidden−information problem before a transaction; higher−risk or w orse−than−average participants are more likely to select into the market (e.g., high−risk individuals are more likely to buy insurance).
[/table]

Question

Part 1Match​ (by number) each concept with its​ description:Part 2[table]
Concept |  Adverse selection | Upper H i dd e n minus i nformat i on probl e m b e for e  a transact i on; h i gh e r minus r i sk or wors e minus than minus av e rag e  part i c i pants ar e  mor e  l i k e ly to s e l e ct i nto th e  mark e t left parenthesis e .g., h i gh minus r i sk i nd i v i duals ar e  mor e  l i k e ly to buy i nsuranc e right parenthesis .Hidden−information problem before a transaction; higher−risk or w orse−than−average participants are more likely to select into the market (e.g., high−risk individuals are more likely to buy insurance).
[/table]

BlackTom AI · Accepted Answer

This question combines two parts but the key focus for the answer is in the concept described in Part 2.
The description given is: 'Hidden-information problem before a transaction; higher-risk or worse-than-average participants are more likely to select into the market (e.g., high-risk individuals are more likely to buy insurance).' This language is standard for the economic concept of adverse selection, which arises when one party in a transaction has more or better information than the other, particularly before a contract is signed. Here, individuals know their own risk level, while insurers cannot perfectly observe it, leading riskier individuals to participate more in the market than is optimal for the average,
as a result of the information asymmetry.
Because the problem occurs prior to the transaction (before enrollment or purchase), it creates a mispricing or adverse selection in markets like insurance, where high-risk individuals are overrepresented relative to their share in the population. This description aligns precisely with the classic definition of adverse selection in economics and information economics.
Since no alternative options are provided in the answer field, there are no additional concepts here to compare against. If there were other terms (for example, moral hazard, market segmentation, or signaling) we would distinguish them by whether the key issue is post-transaction behavior (moral hazard), information signaling, or other dynamics, but none of those fit the given description as directly as adverse selection does.

Homework:Chapter 2 Homework

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