Week 4 - Asymmetric Information Flashcards
1
Q
Explain the concept of Asymmetric Information and name the two different forms of it.
A
2
Q
Illustrate the Adverse Selection example ‘Market for lemons’.
A
3
Q
Illustrate the Adverse Selection example ‘Health Insurance’.
A
4
Q
Explain the concept of Signalling.
A
When asymmetric information is present, some agents will want to invest into signals that will differentiate them from other agents.
Signalling tends to be privately beneficial, but socially wasteful.
5
Q
Explain the Signalling example of ‘Education’.
A
6
Q
Explain the general concept of the ‘Principal-Agent model’.
A
7
Q
Explain how Symmetric Information plays out in the ‘Prinicipal-Agent model’.
A
8
Q
Explain how Asymmetric Information plays out in the ‘Prinicipal-Agent model’.
A
