Markets are more efficient when information is perfect; an example is: a) insider information on the release of a new blockbuster drug

Marketing Dec 29, 2020

Markets are more efficient when information is perfect; an example is:

a) insider information on the release of a new blockbuster drug.

b) CARFAX reports that reveal the accident and repair history of a used car.

c) a fortune-teller's prediction of future interest rate movements.

d) a readily available archive of historical weather reports.

Expert Solution

Markets are more efficient when information is perfect; an example is b) CARFAX reports that reveal the accident and repair history of a used car.

The CARFAX eliminates the problem of asymmetric information because it equalizes the knowledge between the buyer and the seller. Without asymmetric information, there is no adverse selection and markets can operate more efficiently

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