Most transactions could be viewed as examples of asymmetric information since consumers typically have less information about a good or service than the producer. Because the consumer has less information than the producer, the consumer will tend to... esc O Buy the same amount of the product that they would if they had all the information. O Forgo all purchases and only buy goods and services when they have all the information about a product. Buy less of the product than they would if they had all the information. Buy more of the product than they would if they had all the information 10 F 106 6 >C C JUL 21 $ 10 3 do L átv % 5 Search or type URL A C SA MacBook Pro J & 1 * C + C 31h) W P 1 +

Most transactions could be viewed as examples of asymmetric information since consumers typically have less information about a good or service than the producer. Because the consumer has less information than the producer, the consumer will tend to... esc O Buy the same amount of the product that they would if they had all the information. O Forgo all purchases and only buy goods and services when they have all the information about a product. Buy less of the product than they would if they had all the information. Buy more of the product than they would if they had all the information 10 F 106 6 >C C JUL 21 $ 10 3 do L átv % 5 Search or type URL A C SA MacBook Pro J & 1 * C + C 31h) W P 1 +

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 19CTQ: You are on the board of directors of a private high school, which is hiring new tenth-grade science...

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Insurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting the insurance company know about their higher risk. How might this problem impact an insurance company? F T O The company will not be impacted. O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage. The company will be faced with heavy losses. The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell insurance to those they can identify as high risk. 106 # C 4 $ JUL 21 tv♫♬ % MacBook Pro Search or type URL + W D P N Ⓒ
You are on the board of directors of a private high school, which is hiring new tenth-grade science teachers. As you think about hiring someone for a job, what are some mechanisms you might use to overcome the problem of imperfect information?
Describe how the following facts represent solutions to problems of asymmetric information. a. Auto insurance rates are higher for teenagers than for nonteenagers. b. Your car insurance coverage probably includes a deductible—an amount that you have to pay out of pocket before your insurance coverage kicks in. c. Many states have laws like Virginia’s that give customers the right to keep or inspect parts that are removed by an auto mechanic.
Using Freakonomics Chp. 2 Explain how such innovations as the Internet have affected the prevalence of information asymmetries. 6. Explain how information asymmetries facilitated the corporate scandals that occurred in the early 2000s. 7. Explain how the choice of terms a real estate agent uses to describe a particular property conveys additional information about the property, and hence the price a potential buyer might be able to successfully offer the seller. 8. Choose some evidence from Ch. 2 that illustrates how the combination of an information asymmetry and fear can lead to inefficient outcomes. Explain how the introduction of the element of fear makes the problem of the information asymmetry even worse. 9. Identify the evidence the authors offer to support their claim that real estate agents exploit an information asymmetry to their client’s detriment. 10. According to the voting data from the Weakest Link, which two groups of people are most likely to be discriminated…
Adverse selection can occur when a. all persons involved in a transaction have full information one person has information not available to others
A. From the graph below explain how an insurance plan which provides the buyer a $15,000 wealth level, regardless of any uncertain event, is a good deal for the buyer? In other words, what does the distance between points D’ and C’ represent? Note we are referring to D prime, not D. B. Considering the graph below, can you explain the difference between expected utility and certainty utility?
Why is it helpful to track your spending for 2 months?a. You can receive higher interest rates for your savings account when you canshow how you spend your money.b. You can receive special discounts at certain stores when you can show howyou spend your money.c. To identify your spending patterns and then prioritize your needs, wants, andsavings goals.d. To eliminate all spending on your want
6. Jerry plans to buy a new Bluetooth headset. He knows that the same product is offered in different shops with prices of $44, $49, and $60, and with odds of one-third of finding each price. He just stopped at a shop and knows that their price is $49. If the search cost is $1 per additional search, what should Jerry do?
Define complete information
Imagine that you own your business. It does not need to be the same as in other questions, youare allowed to pick a different firm or product. Imagine further that you or your consumers facean asymmetric information problem. a.Please explain in detail what this asymmetric information problem, and who isfacing it (your firm or your consumers).b. Please explain how you solved this problem.
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