Two key consequences of asymmetric information are adverse selection and moral hazard. Define each concept, provide one example of each, and explain how the two concepts differ
What will be an ideal response?
Adverse selection is the situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction. Moral hazard refers to the actions people take after they enter into a transaction that make the other party to the transaction worse off. An important difference between the two is that adverse selection refers to what happens at the time of entering into a transaction (for example, a reckless driver buys automobile insurance) while moral hazard refers to what happens after entering into the transaction (for example, the insured driver drives his car off a highway and into a tree).
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An increase in output due to either a positive supply or demand shock to production will lead to ________
A) an increase in the demand for labor and higher real wages B) a decrease in the demand for labor and higher real wages C) an increase in the demand for labor and lower real wages D) a decrease in the demand for labor and lower real wages
Effective, stable leadership is essential to:
A. economic growth. B. discourage foreign direct investment from taking hold in a country. C. increasing human capital. D. increasing population size.
Cost-push inflation occurs when the factor contributing most to rising prices is increased demand for goods and services
Indicate whether the statement is true or false
Adverse shocks such as the crop failures of 1972–1973 and the oil price increases of 1974 and 1979 pushed the economy’s
A. aggregate supply curve outward. B. Phillips curve inward toward the origin. C. aggregate supply curve inward. D. aggregate demand curve inward.