Two common economic problems that may arise from asymmetric information are:
A) moral consequence and adverse selection.
B) moral hazard and adverse selection.
C) moral hazard and adverse decisions.
D) moral consequence and adverse decisions.

Question

Quizplus · Accepted Answer

Moral hazard and adverse selection are two common economic problems that arise from asymmetric information.

Moral hazard refers to the situation when one party has more information than the other about their actions or behavior. This can lead to the less informed party taking on more risk, as they do not fully understand the potential consequences or risks involved.

Adverse selection refers to the situation when one party has more information than the other about the quality, value or risk associated with a particular transaction or product. This can lead to the less informed party making poor choices, as they do not fully understand the risks or benefits of the transaction or product.

Overall, both moral hazard and adverse selection can cause inefficiencies and distortions in markets.

Two Common Economic Problems That May Arise from Asymmetric Information