Question:
Suppose high quality and low quality products are sold at the same price to the buyers. The buyers have less information to determine the quality of the product compared to the sellers at the time of purchase. Which of the following problems arises in this situation?
Suppose high quality and low quality products are sold at the same price to the buyers. The buyers have less information to determine the quality of the product compared to the sellers at the time of purchase. Which of the following problems arises in this situation?
Updated On: Feb 10, 2025
- Moral hazard problem
- Market signaling problem
- Principal-agent problem
- Adverse selection problem
Hide Solution
Verified By Collegedunia
The Correct Option is D
Solution and Explanation
Adverse selection arises due to information asymmetry where buyers cannot differentiate between high and low quality, leading to potential market failure as good quality products are driven out.
Was this answer helpful?
0
0
Top IIT JAM EN Microeconomics Questions
- There are two goods π and π and there are two consumers π΄ and π΅ in a pure exchange economy. π΄ and π΅ have Cobb-Douglas utility functions of the form $π_π΄ = 2π^{0.4} π^{0.6}$ and $π_π΅ = π^{0.3}π^{0.7}$, respectively. Initially, π΄ is endowed with 50 units of good π and 20 units of good π. Similarly, π΅ is endowed with 50 units of good π and 20 units of good π. If the unit price of good π is normalised to 1, then the equilibrium unit price for good π is _____. (rounded off to two decimal places).
- IIT JAM EN - 2024
- Microeconomics
- Public goods and market failure
- An industry has 6 firms in Cournot competition. Each of the 6 firms has zero fixed costs, and a constant marginal cost equal to 20. The product is homogenous and the industry inverse demand function is given by π = 230 β π, where π is the market price and π is the industry output (sum of outputs of the 6 firms). The market price under Cournot-Nash equilibrium is equal to _____ (in integer).
- IIT JAM EN - 2024
- Microeconomics
- Utility Function
- A consumerβs utility function is given by: $π’(π₯_1, π₯_2) = (2π₯_1 β 1)0.25(π₯_2 β 4)0.75$ If the consumer has a budget of 73 and the unit prices of $π₯_1$ and $π₯_2$ are given by 2 and 1, respectively, then the value of ($π₯_1 + π₯_2$) is ________ (rounded off to two decimal places).
- IIT JAM EN - 2024
- Microeconomics
- Utility Function
- Let an inverse demand function for a commodity be $π = e^{\frac{-x}{2}$, where π₯ is the quantity and π is the price. Then, at π = 0.5, the consumer surplus is equal to _______ (rounded off to two decimal places).
- IIT JAM EN - 2024
- Microeconomics
- Consumer theory
- The characteristics of pure public good is/are
- IIT JAM EN - 2024
- Microeconomics
- Public goods and market failure
View More Questions
Top IIT JAM EN Public goods and market failure Questions
- There are two goods π and π and there are two consumers π΄ and π΅ in a pure exchange economy. π΄ and π΅ have Cobb-Douglas utility functions of the form $π_π΄ = 2π^{0.4} π^{0.6}$ and $π_π΅ = π^{0.3}π^{0.7}$, respectively. Initially, π΄ is endowed with 50 units of good π and 20 units of good π. Similarly, π΅ is endowed with 50 units of good π and 20 units of good π. If the unit price of good π is normalised to 1, then the equilibrium unit price for good π is _____. (rounded off to two decimal places).
- IIT JAM EN - 2024
- Microeconomics
- Public goods and market failure
- The characteristics of pure public good is/are
- IIT JAM EN - 2024
- Microeconomics
- Public goods and market failure
Top IIT JAM EN Questions
- Consider the matrix \( A = \begin{bmatrix} 4 & -1 \\ 12 & -3 \end{bmatrix} \).
The value of the determinant of \( A^5 \) is .......... (rounded off to two decimal places).- IIT JAM EN - 2025
- Linear Algebra
The sum of the payoffs to the players in the Nash equilibrium of the following simultaneous game is ............
Player Y C NC Player X X: 50, Y: 50 X: 40, Y: 30 X: 30, Y: 40 X: 20, Y: 20 - IIT JAM EN - 2025
- Economics and economic theories
- Consider the economy described by the following: \[ Y = C + I + G \quad \text{with} \quad Y = 5000, \, G = 1000, \, T = 1000, \quad \text{and} \quad C = 250 + 0.75(Y - T), \] where \( Y \), \( C \), \( I \), \( G \), and \( T \) are national income, private consumption spending, investment expenditure, government expenditure, and tax revenue respectively. In this economy, private saving is ............
- IIT JAM EN - 2025
- Microeconomics
- Lerner Index (\( L \)), a measure of market power, is defined as \( L = \frac{P - MC}{P} \), where \( P \) and \( MC \) are, respectively, price and marginal cost of a firm. If a profit maximizing firm faces the demand curve \( P^2 Q = 7 \), the value of \( L \) is ............ (rounded off to one decimal place).
- IIT JAM EN - 2025
- Microeconomics
- You are tossing a fair coin repeatedly until a βHeadβ appears. The expected number of tosses required for a βHeadβ to appear is ...........
- IIT JAM EN - 2025
- Probability
View More Questions