Chapter 10- Information

Question 1

Complete information

Answer 1

state of being fully informed about the choices that relevant economic actors face

Question 2

Information asymmetry

Answer 2

a condition in which one participant in a transaction knows more than another participant

Question 3

adverse selection

Answer 3

a state that occurs when buyers and sellers have different info about the quality of a good or riskiness of a situation, and this asymmetric info result in failure to complete transactions that would have been possible if both sides had the same information

Question 4

principal

Answer 4

a person who entrusts someone with a task (employer)

Question 5

agent

Answer 5

a person who carries out a task on someone else’s behalf (employee)

Question 6

moral hazard

Answer 6

the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions

Question 7

screening

Answer 7

taking action to reveal private information about someone else

Question 8

signaling

Answer 8

taking action to reveal one’s own private information

Question 9

statistical discrimination

Answer 9

distinguishing between choices by generalizing based on observable characteristics to fill in missing information