Question

Question 7 (1 point)

Which of the following statements is false?

Question 7 options:

	Asymmetric information can exist both before and after a transaction.
	Moral hazard occurs when one party to a transaction changes his or her behavior in a way that is hidden from and costly to the other party.
	Adverse selection has the potential to eliminate some markets.
	none of the above

Answer 1

None of the above

Every statement that is given is correct. Hence the answer is ‘none of the above’.

Asymmetric information means having greater information by one party than other. It can happen before the transaction and after it also.

Moral hazard means the party has an incentive to take risks in order to earn profits before the transaction actually happens. So it is yes, changing the behavior that may prove costly to the other party.

Adverse selection means the lack of information between the 2 parties before the transaction/ deal is finalized. So because it is when the deal is not finalized, the party can eliminate the market. So, the adverse election has the ability to eliminate a certain market.