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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If planned investment is greater than actual investment, then aggregate expenditure is less than GDP
Indicate whether the statement is true or false
Which of the following is not a reason why government programs might fail to achieve their goals?
a. Insufficient information to correctly achieve the goal. b. One policy goal is in direct conflict with another policy goal. c. Politicians respond to political incentives to deviate from the goal. d. Inability to use coercion to achieve the goal.
Why are government welfare programs often called entitlement programs?
A. Because every U.S. citizen, regardless of income, is entitled to receive benefits under these programs. B. Because everyone living in the U.S., whether the person is a citizen or not, is entitled to a minimum level of income. C. Because those who fail a means test are eligible for cash assistance but not in-kind transfers. D. Because people whose income is below a certain level are entitled to government assistance.
When there is a negative entry for unilateral transfers in the balance of payments, it means that
A) there must be an offsetting positive sign in the financial account. B) U.S. residents gave more to foreign residents than foreign residents gave to U.S. residents. C) U.S. residents purchased less services from foreign countries than foreign countries purchased from U.S. residents. D) U.S. residents purchased more services from foreign countries than foreign countries purchased from U.S. residents.