Explain what may occur when a buyer and a seller have unequal amounts of limited information. Describe two different types of problems that may arise when asymmetric information exists
What will be an ideal response?
Asymmetric information may lead to opportunistic behavior where the informed person benefits at the expense of the person with less information. Adverse selection may occur where the informed person benefits form the less informed person not knowing about an unobserved characteristic of the informed person. Moral hazard may occur if the informed person takes advantage of the less informed person through an unobserved action.
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A perfectly contestable market is one in which there are excessive costs to entry and exit.
Answer the following statement true (T) or false (F)
A decrease in the expected future domestic exchange rate causes the demand for domestic assets to ________ and the domestic currency to ________, everything else held constant
A) increase; appreciate B) increase; depreciate C) decrease; appreciate D) decrease; depreciate
Other things remaining unchanged, which of the following is a determinant of the quantity supplied of a good?
a. The cost of inputs used in production b. The price of the product c. The income levels of consumers d. The price expectations of producers e. The preferences of consumers
Suppose that the percentage change in demand is 10%, the price elasticity of supply is 2, and the percentage change in the equilibrium price is 3.33%. What is the price elasticity of demand?
A. 0 B. 1 C. 2 D. 3