1: In a principal-agent relationship, who is the agent? 2: What does adverse selection refer to in market transactions? 3: What is asymmetric information? 4: What is asymmetric inf... 1: In a principal-agent relationship, who is the agent? 2: What does adverse selection refer to in market transactions? 3: What is asymmetric information? 4: What is asymmetric information? 5: What is moral hazard in the context of asymmetric information? 6: What is the 'lemon problem' in the used car market? 7: What are some strategies that informed parties can use to signal their private information? 8: How can asymmetric information lead to market inefficiencies? 9: How does screening work in the context of insurance companies? 10: If Sarah decides to ask current employees about their experiences at both companies before making her decision, what process is she engaging in? 11: How does the project manager's behavior exemplify moral hazard? 12: What challenge does the principal face in this scenario? 13: How does the company aim to reduce information asymmetry? 14: What problem might arise due to asymmetric information in this scenario? 15: How do political institutions affect economic outcomes for small businesses? Read more

The principal-agent relationship: the agent has tasks or authority from the principal. Adverse selection is exploiting imbalanced information. Screening is assessing applicants' risk, often in insurance. Moral hazard: risk-taking due to another bearing consequences. Asymmetric information causes inefficiencies.

1. The agent in a principal-agent relationship is the one who is delegated authority or tasks by the principal. 2. Adverse selection is when one party in a market transaction has more or better information than the other, leading them to exploit it. 3 & 4. Asymmetric information is when one party in a transaction has more or better information than the other. 5. Moral hazard occurs when an entity has an incentive to take risks because the negative consequences are borne by another party. 6. The 'lemon problem' refers to the issue where sellers have more information than buyers about the quality of a product, leading high-quality products to leave the market. 7. Informed parties can use warranties, certifications, or branding to signal their private information. 8. Asymmetric information can lead to market inefficiencies because it can result in transactions that would not occur if both parties had the same information. 9. Screening in insurance involves assessing the risk level of applicants through various means, like medical examinations. 10. Sarah is engaging in 'screening'. 11. Moral hazard is exemplified when the project manager takes risks because they do not bear the consequences. 12. The principal faces the challenge of ensuring the agent acts in the principal's best interest. 13. The company can disclose more information or make information available to reduce asymmetry. 14. Asymmetric information might lead to suboptimal decisions or market failure. 15. Political institutions affect economic outcomes by creating regulatory environments or incentives that impact small businesses.