Why might asymmetric information contribute to the problem of a market failure?
What will be an ideal response?
One of the underlying tenets of economics is complete and free flowing information. Without such information, one side of a transaction could gain an unfair advantage making free exchange impossible.
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Consider this quote from an article in the Wall Street Journal: "The stock of educated workers isn't increasing fast enough to keep up with rising demand
Employers are paying the typical four-year college graduate [without graduate school] 75% more than they pay high-school grads. Twenty-five years ago, they were paying 40% more. Employers insist on ever better-educated, skilled workers. " Source: David Wessel, "Lack of Well-Educated Workers Has Lots of Roots, No Quick Fix," Wall Street Journal, April 19, 2007, A) The demand for high-school educated workers shifted to the left faster than the supply of college educated workers shifted to the right. B) The supply of high-school educated workers shifted to the right faster than the demand for college educated workers shifted to the right. C) The demand for college educated workers shifted to the right faster than the supply of college educated workers shifted to the right. D) The demand for college educated workers shifted to the right while the supply of college educated workers shifted to the left.
Suppose one county in Missouri decides it wants to reduce alcohol consumption, so the county passes a law that raises the price of a bottle of beer by $1 . As a result, people drive to other counties to drink alcohol, which results in an increase in drunk driving. This illustrates the principle that people respond to incentives
a. True b. False Indicate whether the statement is true or false
If marginal costs are rising, average total costs must be rising.
Answer the following statement true (T) or false (F)
When the government imposes safety regulations on a particular job or labor market, what is most likely to happen?
A. Utility will increase if workers are able to correctly evaluate working conditions. B. Wages will increase. C. Wages will fall but utility will increase if workers misperceive on-the-job risk. D. Firms that used to offer bad working conditions will be required to shut down. E. Employment will increase.