Adverse selection arises primarily due to:

In an insurance market with two risk types (High risk with probability pH and Low risk with probability pL, where pH > pL), which of the following describes a separating equilibrium? A. High-risk types receive full insurance at an actuarially fair premium for high-risk types. B. Low-risk types receive partial insurance at a lower premium. C. Both types receive the same full-insurance contract at the pooling premium. D. The low-risk types are left with a distorted contract (partial insurance) to prevent high-risk types from mimicking them. Which statements correctly describe a separating equilibrium?

The Lemons Market asymmetric information results in which of the following outcomes? A. A gradual fall in the average market price. B. Gradual withdrawal of higher-quality products from the market. C. Gradual withdrawal of lower-quality products from the market. D. Adverse selection by one party (typically the buyer is disadvantaged). E. Complete market collapse in the extreme case. Choose the CORRECT statements: