Asymmetric information occurs when A. everyone has the same information. B. people engaging in a transaction are uncertain about future events. C. the information available to the people in a transaction is misleading or incomplete. D. one person in a transaction has more information than the other.

Question

Business

Jamison Prince

25 May, 01:05

Asymmetric information occurs when A. everyone has the same information. B. people engaging in a transaction are uncertain about future events. C. the information available to the people in a transaction is misleading or incomplete. D. one person in a transaction has more information than the other.

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Answers (1)

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Meadow Wiley · Answer 1

Option (D) is correct.

Explanation:

Asymmetric information occurs in a situation in which one of the two parties involved in a particular transaction have more information than the other party. This problem mostly occurs in a health insurance market where the a person to be insured have more information about his health than the insurance company.

Asymmetric information will result in two problems are as follows:

(i) Adverse selection

(ii) Moral hazard