What is adverse selection, Give an example to illustrate

Questions 1:
What is adverse selection? Give an example to illustrate what adverse selection is. What mechanisms exist to mitigate it?
Question 2:
What is moral hazard?
Give an example to illustrate what moral hazard is. What mechanisms exist to mitigate it
Question 3:
Suppose that a publisher is considering how to pay an author for writing abook. The publisher would like the author to put forth his maximum effort, but the publisher is unable to observe the author’s effort.
a. In this example, who is the principal and who is the agent?
b. What is the moral hazard in paying an author a fixed fee for writing a book? Is there an alternative way of paying the author that would lead to greater effort?
Question 4:
The supply of used high-quality motorcycles is QH = 0.2PH – 1,000, and the supply of used low-quality motorcycles is QL = 0.5PL – 1,000. In the used-motorcycle market potential buyers cannot tell them apart.
a. Consumers value high-quality motorcycles at $10,000 and low-quality motorcycles at $6,000. If consumers believe there is a 50% probability that a used motorcycle is high-quality, what price are consumers willing to pay for any used motorcycle? (10 points)
b. At the price determined in part a. how many high-quality and low-quality motorcycles will be offered for sale? What will happen over time to the consumers willingness to pay for used motorcycles? (15 points)

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