(Solved):When lenders are unable to get good information about the worthiness of a project, the lender has the problem of: a. adverse hazard b. adverse selection c. moral selection d. moral hazard View Answer…

 

Question

When lenders are unable to get good information about the worthiness of a project, the lender has the problem of:

a. adverse hazard

b. adverse selection

c. moral selection

d. moral hazard

 

EXPERT ANSWER

Answer: B

First, choices A and C are made up terms so we have only to choose between moral hazard and adverse selection. Adverse selection is when one party doesn’t have good information about a possible transaction and thus will make worse choices

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