[MUSIC] In this part of the course, I'd like us to think of markets where there's other sources of market failure due to the fact that information is not the same for both sellers and buyers. Let me start with the example of adverse selection. Adverse selection occurs when one side of the market, let's say the buyers, have better information than the other side, let's say the sellers. And so, there is selection of only a high cost or low value being exchanged in the market. Let me give you an example. A very good example of this is the market for life insurance. Life insurance is something someone buys from an insurance company. And you expect a return if something happens to you and you die. Of course, the return wouldn't be to you, but it will be to your family. It's a way of reducing the risk of your family, in the case that you die. Well, what is the adverse selection issue? Life insurance is only going to pay if you die, but the probability of dying is something that the consumer is much more likely to know than the firm. I might know, for example, that I unfortunately have some sort of a disease and it is because I have this disease that I want to go and buy life insurance. What does this mean? This means that only the people with the higher probability of dying will go ahead and buy life insurance. Well, what does this mean for the firm? This means that when the firm sells life insurance, it has to take into account that not everyone is going to buy the life insurance. But that they will be adverse selection. In other words, only the bad risk, the adverse at risk, will go ahead and purchase this life insurance. [BLANK AUDIO]