Presence of asymmetric information in the market causes which of the following? A. Adverse selection B.…

Evaluating each item in relation to market-failure problems caused by asymmetric information: - A. Adverse selection: Directly caused by pre-contractual asymmetric information (hidden characteristics, such as Akerlof's market for lemons). - D. Principal-Agent problem: Directly caused by post-contractual asymmetric information (hidden action / moral hazard, where the principal cannot perfectly observe the agent's effort). - B. Diminishing marginal benefits: A general property of preferences and production unrelated to asymmetric information. - C. Efficiency wages: A wage-setting policy adopted by employers as a remedy to motivate effort, rather than an informational market-failure problem itself. Therefore, A and D only is the correct answer.