Asked by Abder-rahmane Cisse on Jul 03, 2024
Verified
Upon learning that his auto transmission is about to fail, Ray sells his car to an unsuspecting buyer. This circumstance illustrates the
A) adverse selection problem.
B) free-rider problem.
C) moral hazard problem.
D) principal-agent problem.
Asymmetric Information
Asymmetric information occurs when one party in a transaction has more or better information than the other, leading to an imbalance in the decision-making process.
Unsuspecting Buyer
A consumer who purchases goods or services without being aware of all the relevant information, often leading to disadvantageous situations.
Auto Transmission
A type of vehicle transmission that automatically changes gear ratios as the vehicle moves, without input from the driver.
- Recognize how asymmetric information can lead to market inefficiencies and how warranties, product reviews, and other mechanisms can mitigate such problems.
Verified Answer
Learning Objectives
- Recognize how asymmetric information can lead to market inefficiencies and how warranties, product reviews, and other mechanisms can mitigate such problems.
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