Information Asymmetries and Externalities

Information Asymmetries and Externalities

1. Asymmetric Information.  Based on Wheelan’s discussion, explain what is asymmetric information and how it affects markets?  When you buy goods and services how often do you think you have perfect information? Give an example from your own experiences.

2. Moral hazard. Based on Szechman and Anderson’s discussion, explain what is moral hazard and how it affects markets? What do you think of the broad definition of markets by SA? One might say its everywhere economics. Give an example of moral hazard from your own experiences.

3. Discuss the key points that the IMF and Wheelan make about externalities. Give examples of negative and positive externalities that you have encountered.