Presence of asymmetric information in the market causes which of the following? a) Adverse selection b)…
Adverse selection, efficiency wages and principal-agent problems can arise from asymmetric information. Hidden characteristics create adverse selection, while difficulty…
Choose your answer
Presence of asymmetric information in the market causes which of the following?
a) Adverse selection
b) Efficiency wages
c) Principal-agent problem
d) Marginal benefits of an additional unit of resources diminish with an increasing number of unit of resources
Answer and explanation
Correct answer B
Adverse selection, efficiency wages and principal-agent problems can arise from asymmetric information. Hidden characteristics create adverse selection, while difficulty observing effort can motivate efficiency wages and create agency problems. Diminishing marginal benefits do not require an information imbalance.
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Karnataka SET (KSET)