Two problems that arise from asymmetric information are:

Question

Quizplus · Accepted Answer

The two problems that arise from asymmetric information are moral hazard and adverse selection.

Moral hazard refers to the situation where one party engages in risky behavior because they know that the cost of that behavior will be borne by others (i.e., the other party is not fully aware of the risks involved).

Adverse selection refers to the situation where one party has more information than the other party and uses that information to their advantage. This can lead to a situation where the one party selects options that are unfavorable to the other party.

Therefore, option C is the best answer as it correctly identifies both problems associated with asymmetric information.

Two Problems That Arise from Asymmetric Information Are