EBK MICROECONOMICS
9th Edition
ISBN: 8220103630955
Author: Rubinfeld
Publisher: PEARSON
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Question
Chapter 17, Problem 1RQ
To determine
The reason for market failure due to the asymmetric information between the sellers and buyers.
Expert Solution & Answer
Explanation of Solution
The problem of asymmetric information is referred to the problem of market failure that leads to a loss of net social welfare. The reason for the symmetric information is that buyer and seller possess altered information about the transaction price or cost. If the economy fails to avoid the asymmetric information, the market will fail to continue in future.
Economics Concept Introduction
Asymmetric information: Asymmetric information is a situation in which one party of an economic transaction has less information than the other party.
Market failure: Market failure is a situation when the market fails to produce and distribute output efficiently.
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Students have asked these similar questions
Discuss the consequences of asymmetric information for Market Equilibrium.
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Similar questions
- What is moral hazard?arrow_forwardDescribe information imperfection and its role in market failure. Do consumers possess perfect acknowledge regarding their health status and the treatment options available to them?arrow_forwardHow can imperfect information distort markets (i.e. make them less efficient)?arrow_forward
- How might adverse selection make it difficult for an insurance market to operate?arrow_forwardThe problem of adverse selection in insurance markets means that it is generally a bad deal for companies to offer insurance at the same price for all potential customers. Why then do we observe some insurance companies (such as those selling “trip insurance” that refunds money to people who purchase trips that they are unable to take) do exactly this?arrow_forwardHow does the presence of asymmetric information in the used car market impact the behavior of buyers, sellers, and market outcomes?arrow_forward
- One method of solving this problem is through signaling. Signaling is a strategy one uses when they have information. The goal is to use a signal to convince the buyer that the good or service that is being sold is quality and will meet the buyer's wants. Offer an example of a company that uses a signal to help sell its product. What is the signal? What information is the signal trying to convey? Do you think the signal is effective? Why or why not? Does this signal improve market efficiency? Why or why not?arrow_forwardThe VHS rental market, lead primarily by Blockbuster for decades, has largely been decimated by streaming services like Netflix. The demise of the rental market is due in large measure to moral hazard opportunism adverse selection (WRONG) creating destructionarrow_forwardgive an example of an existing economic interaction that exhibits moral hazard. describe the setting and talk about efficiency considerations.arrow_forward
- What do we call asymmetric information? How is it related to pure/perfect competition?arrow_forwardExplain the nature and consequences of asymmetric information in a market for used appliances. Identify available options to reduce the problem.arrow_forwardAdverse selection and moral hazard are problems caused by asymmetric information. Explain their difference with reference to real daily examples.arrow_forward
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