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Chapter 17 Notes

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Department
Economics
Course
ECON 2001.01
Professor
All Professors
Semester
Winter

Description
Chapter 17 Notes The economics of information INTRO ­Asymmetric information is when one party to an economic transaction has  less information than the other party, which causes adverse selection and  moral hazard ­Adverse selection is when companies attract more high­risk drivers than  they would like, given the prices of its policies ­Moral hazard is when people change their behavior after purchasing  insurance 17.1 ­Asymmetric information: A situation in which one party to an economic  transaction has less information than the other party ­Adverse selection: The situation in which one party to a transaction takes  advantage of knowing more than the other party to the transaction ­Warranties and reputations reduce adverse selection ­Most lemon laws have two main provisions 1. New cars that need several  major repairs during the first year or two after the date of purchase may be  returned to manufacturer for full refund 2. Car manufacturers must indicate  whether a used car they are offering for sale was repurchased 
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