Log in
Economics
1
answer
0
watching
216
views
2 Nov 2020

1. What is the reason for the existence of asymmetric information?

a. Asymmetric information exists when adverse selection leads to moral hazard. 

b. Asymmetric information exists when one party to an economic transaction has less information than the other party.

c. Asymmetric information exists when parties to an economic transaction must pay different prices to obtain the same information.

d. Asymmetric information exists when people who have insurance change their actions because of the insurance.

Booster class
Microeconomics
Skill
Explaining Imperfect Information
Watch
1
answer
0
watching
216
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Raushan Raj
Raushan RajLv8
2 Nov 2020

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related textbook solutions

Principles of Economics
2nd Edition, 2017
Openstax
ISBN: 9781947172364
Principles of Macroeconomics
2 Edition,
Openstax
ISBN: 9781947172388
Principles of Microeconomics
2 Edition,
Openstax
ISBN: 9781947172340

Related questions

Asymmetric information is a problem in many markets, such as the used car market, the insurance markets, and the credit markets. Choose one of these three markets, and using some of the concepts you learned from this module, discuss the questions below: What is the market response to asymmetric information? (Hint: Does Coca-Cola have an asymmetric information problem?). What is the market response to adverse selection? (Hint: When you purchased life insurance, did you have to take a physical exam?). What is the market response to moral hazard? (Hint: Remember last time you saw a doctor you had to pay a $30 deductible?). Do you think that education is a "market signal" that can help companies make better economic decisions when asymmetric information exists? What would be the market response if there was perfect information?

7- What steps can be taken by both individuals and companies to generally reduce the cost of external Financing?

1-An inequality in knowledge between two financial parties is called ___________ __________.

symmetrical information ignorance asymmetric information asymmetric investing asymmetric lending

2-When bad credit risks are the ones who most actively seek out a loan they are also the ones most likely to produce an __________ ___________.

immoral outcome unexpected profit adverse outcome adverse rate of return adverse interest rate

3-Asymmetric information and the adverse selection and moral hazard concepts are also crucial problems for the ________________.

health industry professional sports industry automobile industry insurance industry technology industry

4-Important impediments to well-functioning financial markets are created by adverse selection and moral hazard and ___________________ can alleviate these problems.

stock markets financial advisors savants financial intermediaries

5-Improving _________________ is a key role for financial intermediaries because they help financial markets channel funds to people that are a better investment risk.

Economic growth economic expansion economic ineptitude the inflation rate economic efficiency

6-Lending to individuals; ________________ can be minimized because lenders can check the loan applicant’s credit files and credit scores, their employment history, and with the permission of the borrowers, lenders can even verify their income with the internal revenue service.

moral hazard adverse selection inverse selection prudent selection guessing

Question 18

  1. Externalities occur when there is a lack of

    free-riding.

    well-defined property rights.

    market participants.

    government regulation.

3 points

Question 19

  1. When people buy insurance they often adopt risky behavior. This is an example of

    adverse selection.

    moral hazard.

    a negative externality.

    moral hazard and a negative externality.

3 points

Question 20

  1. All the costs of a transaction are referred to as

    transfer costs.

    transactions costs.

    marketing expenditures.

    accounting costs.

3 points

Question 21

  1. Firms would not exist if

    contracts were incomplete.

    residual income equaled normal profit.

    income was spontaneously earned.

    contracts were complete.

3 points

Question 22

  1. The Prime Directive says look to

    the market.

    the government.

    competitors.

    all of these choices.

3 points

Question 23

  1. A firm can find a competitive advantage

    by differentiating its product.

    by having a barrier to entry.

    through its organizational structure.

    all of these choices.

3 points

Question 24

  1. An organizational form that is structured around basic business functions is called

    M-form.

    U-form.

    a matrix.

    a network.

3 points

Question 25

  1. The set of collectively held beliefs, values, and norms among the members of a firm that influence individual behavior is referred to as

    network values.

    horizontal values.

    implicit contracts.

    corporate culture.

3 points

Question 26

  1. "People who have dental insurance don't floss often enough." This is an example of

    asymmetric information.

    bad parenting.

    moral hazard.

    risk adverse behavior

3 points

Question 27

  1. A common way used to align the interests of managers with the interests of equity holders is

    piecework pay.

    stock options.

    forwarded loaded pay schemes.

    insurance.

3 points

Question 28

  1. A piecework wage compensation may be used if productivity

    can be related to the supply chain.

    is easy to measure.

    is difficult to observe.

    is backloaded.

Weekly leaderboard

Home
Homework Help 3,900,000
Economics 400,000
Start filling in the gaps now
Log in