Two consequences of asymmetric information are adverse selection and moral hazard. An important distinction between the two is
A) adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed.
B) moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed.
C) adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
D) moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.
Answer: A
You might also like to view...
What determines how much labor a household will supply?
What will be an ideal response?
By participating in international financial markets, a nation can finance its government budget deficit in part by ________, which ________ the link between the nation's deficit and its internal private investment
A) buying foreign assets, strengthens B) buying foreign assets, weakens C) selling assets to foreigners, strengthens D) selling assets to foreigners, weakens
According to the endogenous growth model with human capital, what can we say about countries with more efficient schools?
A) They are richer. B) They are richer and grow faster. C) They are richer and grow more slowly. D) They grow faster.
One of the strengths of monetary policy relative to fiscal policy is that monetary policy:
A. can be implemented more quickly. B. is subject to closer political scrutiny. C. does not produce a net export effect. D. entails a larger spending income multiplier effect on real GDP.