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Q21: Which one of the following is not a case of information asymmetry? a. Sellers of...

Q21: Which one of the following is not a case of information asymmetry?

a. Sellers of durable goods have more information than buyers of the product

b. Managers have more information than the owners of the firm

c. The perfectly competitive market assumes information asymmetry between buyers and sellers

d. Owner of a second-handed car know the quality of his/her car better than potential buyers

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Answer #1

Information asymmetry means one party has more information than other party involved in any transaction.

For example; Sellers of durable goods have more information than buyers of the product.

Managers have more information than the owners of the firm

Owner of a second-handed car know the quality of his/her car better than potential buyers.

But in perfect competition market, buyers and sellers have perfect knowledge and informaion. There is no inforamtion asymmetry between buyers and sellers.

Thus, the perfectly compeitive market assumes there is perfect information between buyers and sellers.

Answer: Option (C)

Note: In option (C). Some typo mistake is there. Perfectly competitive market assumption is that there is no information asymmetry, instead there is perfect information between buyers and sellers. Hence, there is information symmetry.

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