CAS EC 101 Lecture Notes - Lecture 36: Imperfect Competition, Adverse Selection, Perfect Competition
27 Nov 2018
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When a product loses its value over time or over the number of uses. Ex: once you drive a brand new car out of the dealership, the value of the car decreases exponentially ( https://www. google. com/url?sa=i&source=images&cd=&cad=rja&uact=8&ved=2ahukewj0_4-8. There are 3 conditions in order for a market to be in perfect competition. The violations to these rules are if there is a monopoly (one seller) and imperfect competition. Complete information, which means all the buyers and sellers are well informed and have all the information about the product. Asymmetric information: when some buyers and sellers have more information about a product than other buyers and sellers do. Adverse selection: when the missing information causes a wrong group of people to be consuming the product. Example: at a used car dealership, bob and linda are both trying to sell their car that is the same exact model. However, bob"s car had been malfunctioning for quite a while now and linda"s car works perfectly fine.
