In view of the possible need for government action in markets where asymmetric information is a problem,which of the following is a valid concern?
A)The government almost always has more information than the private parties.
B)Private markets have no means of dealing with information asymmetries on their own.
C)The government is itself an imperfect institution.
D)Legally, the government can rarely intervene in markets.

Question

Quizplus · Accepted Answer

The concern about the government's ability to intervene in markets where asymmetric information is a problem is valid, as the government is itself an imperfect institution. This means that there is a risk that government action may not be effective or may create unintended consequences. Option A is incorrect as the statement is not always true. Option B is also incorrect, as private markets may be able to develop their own mechanisms to deal with information asymmetries, such as reputation systems or industry self-regulation. Option D is incorrect as the government does have legal means to intervene in markets, although the extent of this intervention may be limited by political and legal constraints.

In View of the Possible Need for Government Action in Markets