Information and market power
| English | 中文 | Pinyin |
|---|---|---|
| adverse selection/ædˈvɜːs sɪˈlekʃn/ | 逆向选择 | nì xiàng xuǎn zé |
| moral hazard/ˈmɒrəl ˈhæzəd/ | 道德风险 | dào dé fēng xiǎn |
A decision you can investigate
- A buyer cannot observe the quality of a used device as well as the seller.
- A competitive-looking market can still allocate poorly when information differs.
Build the explanation
- Asymmetric information means one party knows more relevant information. Adverse selection 逆向选择 occurs before a transaction; moral hazard 道德风险 concerns changed behaviour after protection or agreement.
- Market power can raise price above marginal cost and restrict output.
Match the terms to their precise meanings.
Use these definitions in the particular context of Information and market power.
Work through the evidence
- A verified warranty can help a high-quality seller signal quality, but only if the promise is enforceable.
- Compare disclosure, guarantees and regulation using reliability, costs and incentives, rather than assuming information is free.
A buyer rejects good devices because quality is hidden. Which problem fits?
A verified warranty can help a high-quality seller signal quality, but only if the promise is enforceable. Compare disclosure, guarantees and regulation using reliability, costs and incentives, rather than assuming information is free.
Test the limits
- HL depth includes this market-failure analysis and quantitative market-power work; do not make it a compulsory SL examination requirement.
- A label alone earns little explanation: connect the information problem to a behaviour and outcome.
Which caution belongs to this particular task?
HL depth includes this market-failure analysis and quantitative market-power work; do not make it a compulsory SL examination requirement. A label alone earns little explanation: connect the information problem to a behaviour and outcome.
The explanation in this lesson makes a conditional claim; relevant context and evidence still matter.
A label alone earns little explanation: connect the information problem to a behaviour and outcome.
Apply and explain your answer
- A buyer rejects good devices because quality is hidden. Which problem fits?
- Adverse selection caused by asymmetric information.
Choose the two statements supported by this lesson.
The concept and worked evidence support these claims; the stated limits rule out the universal shortcut.
Use the terms precisely
- adverse selection: Hidden information before a transaction distorts selection.
- moral hazard: Protection changes incentives for risk-taking or care.
A verified warranty can help a high-quality seller signal quality, but only if the promise is enforceable. Compare disclosure, guarantees and regulation using reliability, costs and incentives, rather than assuming information is free.
HL depth includes this market-failure analysis and quantitative market-power work; do not make it a compulsory SL examination requirement. A label alone earns little explanation: connect the information problem to a behaviour and outcome.
Asymmetric information means one party knows more relevant information. Adverse selection occurs before a transaction; moral hazard concerns changed behaviour after protection or agreement.