Frequently it is the case that: (1) A worker knows more than his employer about how much effort he puts into his job, and (2) the seller of a used car knows more than the buyer about the car's condition.
A)Neither (1) nor (2) serves as an example of asymmetric information.
B)Both (1) and (2) serve as examples of asymmetric information.
C)Neither (1) nor (2) serves as an example of a hidden action.
D)Both (1) and (2) serve as examples of hidden action.

Question

Quizplus · Accepted Answer

Both (1) and (2) are examples of asymmetric information, where one party has more or better information than the other. In (1), the worker has more information about his own effort, and in (2), the seller knows more about the car's condition than the buyer.

Frequently It Is the Case That: (1) a Worker Knows