The concept of 'Adverse Selection' in insurance markets leads to:
A. Higher-risk individuals being more likely to purchase insurance
B. No effect on the pool of insured
C. Lower-risk individuals being more likely to purchase insurance
D. Only moral hazard problems
Answer: Option A
Solution (By JKSSB Mock Tests)
Because high-risk individuals have a greater incentive to buy insurance at any given premium, the insured pool tends to be riskier than the population average, driving up premiums and potentially causing market unraveling.
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