The Problem Created by Asymmetric Information Before the Transaction Occurs

question 118

Multiple Choice

The problem created by asymmetric information before the transaction occurs is called ________,while the problem created after the transaction occurs is called ________.

• A)adverse selection;moral hazard
• B)moral hazard;adverse selection
• C)costly state verification;free-riding
• D)free-riding;costly state verification

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Definitions:

Integrated Contracts

An integrated contract is a written agreement that constitutes the final and complete understanding between parties, encompassing all terms and conditions.

Parol Evidence Rule

A legal principle that prevents the parties to a written contract from presenting extrinsic evidence of terms of the agreement that contradict, modify, or vary contractual terms.

Written Agreement

A formalized contract between parties that is expressed in written form and signed to evidence the agreement.

Oral Agrees

Informal verbal agreements which may be legally binding if they meet certain criteria, despite the lack of written documentation, often depending on the context and jurisdiction.