Moral Hazard and Adverse Selection Are Both Examples of

question 17

Multiple Choice

Moral hazard and adverse selection are both examples of

• A)the principal-agent problem.
• B)externalities in consumption.
• C)efficiency in markets.
• D)perfect information.
• E)asymmetric information.

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Definitions:

Marginal Social Cost

The total cost to society of producing an additional unit of a good or service, including both private costs and any external costs.

Unregulated Level

Typically refers to a state in which market activities or specific industries operate without government-imposed controls or restrictions.

Marginal Cost

The growth in aggregate costs resulting from the manufacture of an additional product or service unit.

Externalities

Economic side effects or consequences of commercial activities that affect other parties without being reflected in the costs of the goods or services involved.