Asymmetric information is a problem in many markets, such as the used car market, the insurance markets, and the credit markets. Choose one of these three markets, and using some of the concepts you learned from this module, discuss the questions below:
- What is the market response to asymmetric information? (Hint: Does Coca-Cola have an asymmetric information problem?).
- What is the market response to adverse selection? (Hint: When you purchased life insurance, did you have to take a physical exam?).
- What is the market response to moral hazard? (Hint: Remember last time you saw a doctor you had to pay a $30 deductible?).
- Do you think that education is a “market signal” that can help companies make better economic decisions when asymmetric information exists?
- What would be the market response if there was p