If adverse selection exists in a market, A) it increases ...

[nevelica]

If adverse selection exists in a market,
 
  A) it increases consumer surplus but reduces producer surplus.
  B) it reduces consumer and producer surplus.
  C) it reduces producer surplus but has no impact on consumer surplus.
  D) it increases both consumer and producer surplus.

Question 2

If a bank offers mortgages that do not require the normal 20 down payment, the bank encourages
 
  A) people who know they might not pay off the mortgage.
  B) people who can't afford the down payment but can pay off the mortgage.
  C) people who know that they are going to pay off the mortgage.
  D) people who know they can't pay off the mortgage but who can afford the down payment.

[frogdreck123456]

Answer to Question 1

B

Answer to Question 2

A