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In circumstances of imperfect information should one expect the market to be efficient? Explain briefly.
imperfect information occurs where the information is not perfect. The asymmetric information is also a part of imperfect information.
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- Why is imperfect information a problem in market economies? Give a current example of how imperfect information causes a disruption in a market.Discuss the consequences of asymmetric information for Market Equilibrium.When markets suffer from imperfect information, it can decrease demand. (a) Why do consumers have a lower willingness to pay when they do not have enough information. (b) State one way that firms can solve this problem. (c) Explain why your answer to (b) will overcome consumers' reluctance to buy a product when they lack information.
- Describe information imperfection and its role in market failure. Do consumers possess perfect acknowledge regarding their health status and the treatment options available to them?The information which is reflected in current market prices with the help of past price movements is classified as a. market efficiency b. weak from efficiency c. strong efficiency d. semi-strong efficiencyOne method of solving this problem is through signaling. Signaling is a strategy one uses when they have information. The goal is to use a signal to convince the buyer that the good or service that is being sold is quality and will meet the buyer's wants. Offer an example of a company that uses a signal to help sell its product. What is the signal? What information is the signal trying to convey? Do you think the signal is effective? Why or why not? Does this signal improve market efficiency? Why or why not?
- The problem of adverse selection in insurance markets means that it is generally a bad deal for companies to offer insurance at the same price for all potential customers. Why then do we observe some insurance companies (such as those selling “trip insurance” that refunds money to people who purchase trips that they are unable to take) do exactly this?What impact do asymmetric and imperfect information have on prices and quantities? Group of answer choices An unstable equilibrium. A decline in prices or quantities of products sold. One party (buyer/seller) will always be unhappy. One party will be made better off, and the other party will be made worse off.Asymmetric information and/or imperfect information can cause two forms of market failure: 1) adverse selection and 2) moral hazard. Asymmetric information is where one party in the transaction has more information than the other party in the transaction. Imperfect information is a situation in which neither party has perfect information about the good/service being exchanged in a transaction. Such goods and services are sometimes referred to as "experience goods." In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the "residual value," computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, the manufacturer lost an average of $480 on each returned car. (The auction price was, on average, $480…
- Why does the lemon market problem occur where sellers of unqualified goods stay in the market, while sellers who have quality goods leave the market? This means there is a quality problem. In the context of asymmetric information, does it include adverse selection or moral hazard?Asymmetric information and/or imperfect information can cause two forms of market failure: 1) adverse selection and 2) moral hazard. Asymmetric information is where one party in the transaction has more information than the other party in the transaction. Imperfect information is a situation in which neither party has perfect information about the good/service being exchanged in a transaction. Such goods and services are sometime referred to as "experience goods." In the late 1990s, car leasing was very popular in the United States. A customer would lease a car from the manufacturer for a set term, usually two years, and then have the option of keeping the car. If the customer decided to keep the car, the customer would pay a price to the manufacturer, the “residual value,” computed as 60% of the new car price. The manufacturer would then sell the returned cars at auction. In 1999, the manufacturer lost an average of $480 on each returned car. (The auction price was, on average, $480…The text points out that asymmetric information can have deleterious effects on market outcomes. a. Explain how asymmetric information about a hidden action or a hidden characteristic can lead to moral hazard or adverse selection. b. Discuss a few tactics that managers can use to overcome these problems.
