Homework answers / question archive / True / False Questions 1)Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction

True / False Questions 1)Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction

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True / False Questions

1)Asymmetric information occurs when the two parties in a market transaction do not have the same amount of information regarding the product or process involved in the transaction.

2.         The licensing and regulation of financial advisers is one way by which the government tries to deal with the problem of inadequate information that financial firms have about their customers.

3.         Better Business Bureaus in various cities exist partly in order to try to deal with inadequate buyer information about sellers.

4.         A moral hazard problem occurs before a transaction-when people alter their behavior before they sign a contract, imposing costs on the other party.

5.         Adverse selection is when someone with home insurance decides to take the chance that a dying tree would fall on the garage, rather than spend the money to have the tree cut down.

6.         When the government bails out large banks when the banks become unstable, it could lead to a moral hazard problem in banking.

7.         When the government bails out failing banks, it creates a moral hazard problem; but when the government bails out homeowners who are defaulting on their mortgages, there is no moral hazard problem.

8.         When critics of unemployment insurance claim that some of the unemployed are not exerting much effort to find jobs because of the unemployment benefits, they are referring to the moral hazard problem.

9.         eBay and Amazon provide "sellers' ratings" information based on the experiences of past buyers. This is to help resolve the adverse selection problem faced by potential buyers.

10.       An example of an adverse selection problem is in insurance, where the people most likely to claim insurance payouts are the people who will seek to buy the most generous policies.