ECON1001 Study Guide - Quiz Guide: Imperfect Competition, Adverse Selection, Moral Hazard
Adverse selection is an information-related market failure; specifically, asymmetric information: where one of the market has more information than the other. The correct answer is: one side of the market has more information than the other. Moral hazard is where someone else picks up the losses while you keep the gains. The correct answer is: a consumer or producer does not have a good incentive to guard against risk or reduce cost because they are protected from consequences or do not pay the bills. While it often involves moral hazard, a principle-agent problem is more specifically about a situation where someone in the employ of somebody else has different desires than their employer. The correct answer is: someone acting on behalf of another person does not have the same interests as that person. Select one: imperfect information, imperfect competition, externalities, public goods. We"ve covered all the other market failures except imperfect information.