Two Consequences of Asymmetric Information Are Adverse Selection and Moral

question 53

Multiple Choice

Two consequences of asymmetric information are adverse selection and moral hazard.An important distinction between the two is

• A)adverse selection exists prior to the completion of a transaction while moral hazard occurs after the transaction is completed.
• B)moral hazard exists prior to the completion of a transaction while adverse selection occurs after the transaction is completed.
• C)adverse selection leads to an inefficient quantity while moral hazard leads to an efficient quantity.
• D)moral hazard leads to an inefficient quantity while adverse selection leads to an efficient quantity.

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Definitions:

Social Learning

A theory that suggests individuals can learn behaviors, skills, and attitudes through observing others.

Aggressive Behavior

Actions intended to harm or injure another individual, whether physically or psychologically.

Aversive Emotional Arousal

An uncomfortable or negative emotional response induced by certain stimuli or situations, often leading to avoidance behavior.

Presence Of A Weapon

Refers to situations or contexts where a weapon is available or detected, which can influence individuals' behavior and perceptions.