Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 17.5, Problem 1ST
To determine
An example of asymmetric information.
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Students have asked these similar questions
Discuss the consequences of asymmetric information for Market Equilibrium.
"Information asymmetry is detrimental for decision-making in the marketplace and hence is a market failure." Provide an example to illustrate this. Then suggest a policy that is used to address this problem.
Give an example, real or imaginary, of a moral hazard problem.
Again, your example must clearly point out:
what information is private/asymmetric (is it an attribute or an action?)
which party has the private information
when does the information asymmetry arise (before or after the contract/transaction?)
what is the likely outcome and in which way it can be inefficient
Chapter 17 Solutions
Microeconomics
Ch. 17.1 - Prob. 1STCh. 17.1 - Prob. 2STCh. 17.2 - Prob. 1STCh. 17.2 - Prob. 2STCh. 17.2 - Prob. 3STCh. 17.2 - Prob. 4STCh. 17.3 - Prob. 1STCh. 17.3 - Prob. 2STCh. 17.3 - Prob. 3STCh. 17.4 - Prob. 1ST
Ch. 17.4 - Prob. 2STCh. 17.4 - Prob. 3STCh. 17.5 - Prob. 1STCh. 17.5 - Prob. 2STCh. 17.5 - Prob. 3STCh. 17 - Prob. 1QPCh. 17 - Prob. 2QPCh. 17 - Prob. 3QPCh. 17 - Prob. 4QPCh. 17 - Prob. 5QPCh. 17 - Prob. 6QPCh. 17 - Prob. 7QPCh. 17 - Prob. 8QPCh. 17 - Prob. 9QPCh. 17 - Prob. 10QPCh. 17 - Prob. 11QPCh. 17 - Prob. 12QPCh. 17 - Economists sometimes shock noneconomists by...Ch. 17 - Prob. 14QPCh. 17 - Prob. 15QPCh. 17 - Prob. 1WNGCh. 17 - Prob. 2WNGCh. 17 - Prob. 3WNG
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- Give an example, real or imaginary, of an adverse selection problem. Your example must clearly point out: what information is private/asymmetric (is it an attribute or an action?) which party has the private information when does the information asymmetry arise (before or after the contract/transaction?) what is the likely outcome and in which way it can be inefficientarrow_forwardAdverse selection and moral hazard are problems caused by asymmetric information. Explain their difference with reference to real daily examples.arrow_forwardHow could a company minimize asymmetric information if they were interested in pricing their stock fairly?arrow_forward
- One method of solving this problem is through signaling. Signaling is a strategy one uses when they have information. The goal is to use a signal to convince the buyer that the good or service that is being sold is quality and will meet the buyer's wants. Offer an example of a company that uses a signal to help sell its product. What is the signal? What information is the signal trying to convey? Do you think the signal is effective? Why or why not? Does this signal improve market efficiency? Why or why not?arrow_forwardDescribe the two problems arising from asymmetric information, namely: Adverse selection; and Moral hazard.arrow_forwardHow does private information about consumer types impact pricing strategies and market outcomes in the context of asymmetric information in economics?arrow_forward
- Asymmetric information makes it hard for investors to sell securities. Banks, meaning both investment and commercial, specialize in reducing asymmetric information. What methods do they have for reducing information asymmetries? Be sure to specify if the methods are designed to reduce the problems of adverse selection or moral hazard.arrow_forwardWhat would explain why moral hazard might not occur after the large gains in health insurance coverage?arrow_forwarda) Suppose an insurance company decides to insure the earnings obtained by a professional tennis player (in the event of an injury), provided she does not engage in activities like skydiving or skiing. Which asymmetric information problem is the insurance company trying to avoid? b) How do insurance companies protect themselves against losses due to adverse selection and moral hazard? c) How do insurance companies price their products to solve the problem of asymmetric information?arrow_forward
- Explain the relationship between moral hazard and insurance premiumsarrow_forwardIn the context of asymmetric information, adverse selection and moral hazard, how does marketFailure occur? (Make reference to the insurance or financial market)arrow_forwardHow does the presence of asymmetric information in the used car market impact the behavior of buyers, sellers, and market outcomes?arrow_forward
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