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:

GDP

Gross Domestic Product, the total market value of all final goods and services produced within a country in a given period.

Public Infrastructure

The foundational facilities and systems serving a country, city, or area, including the services and facilities necessary for its economy to function, such as transportation, communication, sewage, water, and electric systems.

Public Debt

The total amount of money that a government has borrowed and not yet repaid, including both internal and external borrowings.

GDP

A rephrased definition: The sum value of all goods and services produced over a specific time frame within a nation's borders.