Answer the following questions true (T) or false (F)
1. One effect of adverse selection in a market is that the equilibrium quantity of the product may
be smaller than it would have been if there were no asymmetric information problems.
2. Due to adverse selection, very few lemons will be sold in the market for used cars.
3. The situation in which one party to a transaction takes advantage of knowing more than the other party to the transaction is known as asymmetric information.
1. TRUE
2. FALSE
3. FALSE
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The change in consumption divided by the change in disposable income is equal to
A) real GDP. B) household saving. C) the slope of the consumption function. D) aggregate expenditure.
Suppose the short-run production function is q = 10 ? L. If the wage rate is $10 per unit of labor, then AVC equals
A) q. B) q/10. C) 10/q. D) 1.