#1
What is information asymmetry in economic decision-making?
When one party has more information than the other
ExplanationInformation disparity between parties affecting decision-making.
#2
Which of the following is an example of adverse selection due to information asymmetry?
Used car sales with undisclosed issues
ExplanationChoice of low-quality goods due to hidden information.
#3
Which economic concept is closely related to the 'lemons problem' in the used car market?
Adverse selection
ExplanationQuality deterioration in markets with hidden product information.
#4
How does information asymmetry contribute to market failure?
By leading to suboptimal outcomes due to one party having more information
ExplanationResulting in inefficient market outcomes.
#5
In financial markets, what is the concept related to the practice of insider trading?
Information asymmetry
ExplanationUnequal access to information influencing trading.
#6
In the context of moral hazard, what does information asymmetry refer to?
When one party takes risks knowing the other party cannot observe or monitor those risks
ExplanationRisk-taking behavior due to hidden actions.
#7
How can signaling be used to mitigate information asymmetry?
By providing credible signals that reveal private information
ExplanationUtilizing trustworthy signals to convey private data.
#8
What is the role of asymmetric information in the principal-agent problem?
It creates challenges as the agent may have more information than the principal
ExplanationChallenge in alignment of interests due to information disparity.
#9
Which type of information asymmetry occurs when one party possesses more information about their intentions and actions than the other?
Moral hazard
ExplanationRisk-taking behavior due to hidden actions.
#10
How does the winner's curse illustrate the impact of information asymmetry in auctions?
Winners tend to overpay due to their lack of information
ExplanationOverpayment by winners in auctions due to limited information.