Match each of the terms on the left with its definition on the right. Click on the term first and then click on the matching definition. As you match them correctly they will move to the bottom of the activity.
complete information asymmetric information lemons problem adverse selection moral hazard principal– signaling signal | A situation in which there is an imbalance of information across participants in an economic transaction. A solution to the problem of asymmetric information in which the knowledgeable party alerts the other party to an unobservable characteristic of the good. Economic transactions that feature information asymmetry between a principal and his hired agent, whose actions the principal cannot fully observe. A costly action taken by an economic actor to indicate something that would otherwise be difficult to observe. A situation in which all participants in an economic transaction know the relevant information. A situation in which market characteristics lead to more low- An asymmetric information problem that occurs when a seller knows more about the quality of the good he is selling than does the buyer. A situation that arises when one party in an economic transaction cannot observe the other party’s behavior. |