Question

Please expert I am requesting you explain well.

2. Write a sentence or two (in your own words) explaining the following concepts:

a. Asymmetric information

b.Principal-agent problem

c.The tragedy of the commons

d.Bounded rationality

c.Evolutionary stability

Answer 1

Answer 2 (a): Asymmetric information: It refers to the economic failure which arises because of a difference in the possession of knowledge by the buyer and seller. In simple words, when any of the parties, whether the buyer or the seller has more information about the product or service provided, it leads to information asymmetry.

Answer 2 (b): Principal-agent problem: The principal- agent problem deals with a conflict of interests between the principal and the agent. Here, the principal works in a manner which derives more profits to the principal and the agent works in a manner which is in his best interests.

Answer 2 (c): The tragedy of the commons: It is an economic problem in which one individual consumes a resource at the cost of others consuming less amount of the resource. It leads to overconsumption and exhaustion of the resource.

Answer 2 (d): Bounded rationality: It refers to the fact that the rationality in the decision making is bounded or restricted by an individual’s thinking and mentality. The degree of information available to him and the time individuals take to make a final decision.

Answer 2 (e): Evolutionary stability: It is a strategy which once implemented in the economic environment cannot be invaded or penetrated by any other rare strategies in force.