Question

(Last word) Since it's not possible for governments to know the costs of pollution abatement as well as polluters know themselves, then there is an
A) asymmetric information problem
B) externality problem
C) moral hazard problem
D) probkem with the law of demand

Answer 1

Correct option: A) asymmetric information problem

Since it is not possible for the government to know the cost of pollution abatement but the polluters knows themselves this creates an asymmetric information problem.
according to the definition of asymmetric information problem we know that when there is interaction or transaction between two parties for example a buyer and seller then the seller in most cases have more material knowledge about the product then the buyers this create an asymmetry in the information. Here in the given scenario we see that the Bollywood actors have more knowledge than the government. Most of the economic transaction have some or the other information asymmetries.

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