Which of the following is likely to arise in a market with asymmetric information?
A) The problem of moral hazard
B) A pecuniary externality
C) A positive externality
D) A prisoners' dilemma

Question

Quizplus · Accepted Answer

In a market with asymmetric information, one party has more information than the other, leading to an imbalance in power and the potential for the problem of moral hazard. This occurs when the party with less information takes risks or makes decisions based on incomplete information, knowing that the other party will bear the consequences. Pecuniary externalities and positive externalities may also arise in markets, but they are not necessarily linked to asymmetric information. A prisoner's dilemma is a game theory scenario that can arise in a variety of settings, including those with asymmetric information, but it is not a direct consequence of information asymmetries.

Which of the Following Is Likely to Arise in a Market