1. Which is an example of asymmetric information? A) an employer not knowing whi
ID: 467871 • Letter: 1
Question
1. Which is an example of asymmetric information? A) an employer not knowing which job candidate will do the best job
B) a buyer using a compiled report on the quality of a used car
C) a shopper using Internet reviews to help her decide which washing machine to purchase
D) a doctor prescribing a medication for a patient (incorrect answer)
2. A real estate agent who is paid on a contingency fee may not reduce moral hazard as well as a lawyer paid on a contingency fee because:
A) the lawyer is bound by an oath to represent her client well.
B) the real estate agent's contingency fee is based on time to sale completion. (incorrect answer)
C) the real estate agent's payment is smaller, therefore he may not wait for the best offer on his client's house.
D) the lawyer's job takes much longer to complete, therefore she will work harder.
3. In the market for used cars, half of the cars are of good quality and would sell for $8,000, while half of the cars are of poor quality and would sell for $6,000. If a buyer possessed no information about the quality of the car she was considering, what would she be willing to pay for it?
A) $8,000
B) $7,000 (incorrect answer)
C) $6,000
D) The buyer would choose not to buy because of the lack of information
please explain how to solve. My book said (1/2x$)+(1/2x$) but that gave me 7,000 which is incorrect.
(.5
Explanation / Answer
1)
Asymmetric information is also known as information failure. It refers to the situation when one party involved in an economical transaction has greater knowledge than the other party. Generally labor markets operate in such environments. Here, employer does not know the true skill set of their candidates. A candidate might exaggerate his qualifications or skills in front of the employer to get the job.
Hence, the correct option is A) an employer not knowing which job candidate will do the best job.
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