What is private information and what problems does it create?
What will be an ideal response?
Private information is information that is available to one person but too costly for anyone else to obtain. Private information creates two problems: moral hazard and adverse selection.
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Which of the following is NOT an example of an externality?
A) A bread company emits a wonderful aroma in the air that makes people smile. B) The neighbor's wind chimes interfere with your sleep. C) A firm fires 500 people. D) Cancer-causing chemicals are dumped into the drinking water supply of a city.
If the economy is on the aggregate supply curve but to the right of the aggregate demand curve, which of the following will be the first market force to lead the economy toward an equilibrium?
a. At the current output level, prices will be too low and firms will increase their prices. b. At the current price level, output will be too low, inventories will diminish, and firms will increase their production. c. At the current output level, prices will be too low and firms will lower their prices. d. At the current price level, output will be too high and so prices will drop so that output will drop. e. At the current price level, output will be too high, inventories will pile up and firms will cut back on their production.