Explain the differences between asymmetric information, adverse selection, and moral hazard
What will be an ideal response?
Asymmetric information is a situation that occurs when one party to a transaction has more or better information than the other party has. Adverse selection is the tendency for the people who pose the greatest risks to insurers to buy insurance. Moral hazard is a change in behavior that occurs after a person becomes insured against a loss. Both adverse selection and moral hazard are a result of asymmetric information.
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If employers are provided a subsidy of $1 per hour for hiring workers, ________
A) the equilibrium real wage will decrease B) labor demand will decrease C) the equilibrium employment will increase D) labor supply will increase
With the real wage on the vertical axis and the unemployment rate on the horizontal axis, we know that
A) the WS curve is upward sloping. B) the WS curve is downward sloping. C) the PS curve is upward sloping. D) the PS curve is downward sloping.