Which of the following statements is true?

Question

Quizplus · Accepted Answer

Adverse selection and moral hazard are both problems that arise from information asymmetry. Adverse selection occurs when one party has better information about the quality of a product or service being exchanged, leading to the selection of lower quality options. Moral hazard occurs when one party has better information about their actions, leading to riskier behavior after a transaction has been made. Both problems can occur in any market structure, not just monopolies. Additionally, adverse selection occurs before a transaction, while moral hazard occurs after a transaction.

Which of the Following Statements Is True