What are the two basic problems involving asymmetric information
A)moral dilemma and inverse-risk selection
B)moral dilemma and adverse selection
C)moral hazard and inverse-risk selection
D)moral hazard and adverse selection

Question

Quizplus · Accepted Answer

The two basic problems involving asymmetric information are moral hazard and adverse selection. Moral hazard occurs when one party takes risks because they know the other party will bear the costs. Adverse selection occurs when one party has more information than the other and uses it to their advantage, resulting in the other party paying a higher price or receiving lower-quality products. Therefore, the best choice is D, moral hazard and adverse selection.

What Are the Two Basic Problems Involving Asymmetric Information