Chapter 1, Problem 3Q

Explain the problems of adverse selection and moral hazard caused by asymmetricinformation. How can financial intermediaries alleviate those problems?

Having inaccurate financial statements that can harm society would correspond with the ethical perspective of distributive justice. Discuss

Which of the following arguments supports the view that regulation is not necessary, particularly to the extent that it currently exists? Select one: a. Markets for information are not efficient and therefore produce a sub-optimum amount of information, given the problem of 'free riders'. b. Accounting information is like any other good, and people will be prepared to pay for it to the extent that it has a use. c. Investors need protection from fraudulent organisations that may produce misleading information. d. Information asymmetry exists because not everyone has the same power over resources to obtain the information they need.