Back to the full dot-point answer
SingaporeEconomicsQuick questions
Market Failure and Intervention
Quick questions on Information failure and asymmetric information explained: H2 Economics
5short Q&A pairs drawn directly from our worked dot-point answer. For full context and worked exam questions, read the parent dot-point page.
What is adverse selection (hidden information, before the deal)?Show answer
Adverse selection arises when one side cannot observe the type or quality of the other before trading, so the wrong types are selected into the market.
What is moral hazard (hidden action, after the deal)?Show answer
Moral hazard arises when one party, once protected by a contract, changes its behaviour because it no longer bears the full consequences, and the other party cannot observe this.
What is q1?Show answer
Define asymmetric information. [2 marks]
What is q2?Show answer
Explain how adverse selection can cause a used-car market to fail. [3 marks]
What is q3?Show answer
Give one example of moral hazard and explain it. [2 marks]
Have a question we have not covered?
This dot-point answer is short enough that we have not extracted many short questions yet. Read the full dot-point answer or ask Mo, our study assistant, in the chat for follow ups.