In Each of the Following Situations, Explain Why There Is

question 35

Essay

In each of the following situations, explain why there is asymmetric information, and identify the problem of adverse selection.
a.The sale of life insurance
b.The sale of used computers

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Definitions:

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenue.

Revenues

The income generated from normal business operations, calculated by multiplying the price of goods or services by the quantity sold.

Dividends Payable

A liability account in a company's balance sheet indicating the amount in dividends that the company owes to its shareholders but has not yet paid out.

Operating Expenses

Expenses incurred from a company's operational activities, excluding the cost of goods sold, taxes, and interest expenses.