Prices Are Inefficient Rationing Devices

question 77

True/False

Prices are inefficient rationing devices.

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Definitions:

Asymmetric Information

A situation where one party in a transaction has more or superior information compared to another, potentially leading to an imbalance in decision-making, similar to adverse selection.

Adverse Selection

A situation in which asymmetrical information leads to the selection of suboptimal market participants, often seen in insurance markets where those most likely to make a claim are also most likely to seek insurance.

Market Signals

Information or indicators that suggest the future direction of market prices, helping investors and businesses make decisions.

Uncertainty

The state of having limited knowledge where it is impossible to exactly describe existing states, outcomes, or future events.