Question

Asymmetric information occurs when A. everyone has the same information. B. people engaging in a transaction are uncertain about future events. C. the information available to the people in a transaction is misleading or incomplete. D. one person in a transaction has more information than the other.

Answer 1

Answer:

Option (D) is correct.

Explanation:

Asymmetric information occurs in a situation in which one of the two parties involved in a particular transaction have more information than the other party. This problem mostly occurs in a health insurance market where the a person to be insured have more information about his health than the insurance company.

Asymmetric information will result in two problems are as follows:

(i) Adverse selection

(ii) Moral hazard