Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
5th Edition
ISBN: 9781337192712
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 14, Problem 3.6P
To determine
Asymmetric information and compare hidden characteristics with hidden actions and determine the type of asymmetric information that contributes to the problem of principal-agent.
Concept Introduction: Asymmetric information is lack of information where one party has an advantage over the other and they use it to their economic advantage.
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7 A principal-agent problem can arise when
a) an agent hires a principal to do something on their behalf, and the agent can observe the principal's actions.
b) a principal hires an agent to do something on their behalf, but the principal cannot perfectly observe the agent's actions.
c) a principal uses an agent to accomplish a task the principal wants credit for completing.
d) an insurance agent sells a policy to a buyer who uses it as an incentive to behave badly
24. Consider adverse selection in the car insurance market. Drivers are either risky or safe. The insurance
companies cannot distinguish between the two types of drivers, but they know that 50% of all drivers are
risky. Insuring a risky driver costs $3,000, while insuring a safe driver costs $1,000. The benefits of
insurance is $4,000 for a risky driver and $1,500 for a safe driver. If insurers cannot observe the type of
buyer they are insuring, what is the minimum equilibrium price of insurance?
a. $1,000
b. $1,500
c. $2,000
d. $3,000
e. $4,000
Please answer the below questions all answers must be original No Plagiarism cannot use internet answers You must provide a plagiarism report DUE TODAY 5/29/2016 6:00 P.M. PACIFIC TIME ZONE 18:00 EASTERN TIME ZONEMUST DELIVER ONTIME NO ROOM FOR LATE DELIVERY1. (Asymmetric Information) Define asymmetric information. Distinguish between hidden characteristics and hidden actions. Which type of asymmetric information contributes to the principal-agent problem?2. (The Principal-Agent Problem) Discuss the nature of the principal-agent problem. Determine which is the principal and which is the agent in each of the following relationships:a) A- A firm that produces export goods and the export management company that helps market its goods overseasb) B.-The management of a firm and its stockholders3. (Securities Exchanges) What role do securities exchanges play in financing corporations?4. Although the article is dated, please read Jane Katz, “Who Should Be in…
Chapter 14 Solutions
Bundle: ECON MICRO, 5th + Aplia, 1 term Printed Access Card
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