Adverse Selection and Moral Hazard Arise Because of

question 90

Multiple Choice

Adverse selection and moral hazard arise because of

• A) asymmetric information.
• B) selection problems.
• C) risk aversion.
• D) mechanism designs for dealing with informational problems.

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Definitions:

Demand Function

An equation that illustrates the quantity of an item that will be demanded at various prices, assuming all other factors remain constant.

Equilibrium Price

The market price at which the quantity of a good supplied is equal to the quantity demanded, resulting in market equilibrium.

Marginal Cost

The augmentation in total cost triggered by the creation of one further unit of a product or service.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers, leading to a state of market equilibrium.