Methods used to reduce asymmetric information include (choose all that apply): Question 42 options: Signaling. Rationalizing....

Methods used to reduce asymmetric information include (choose all that apply):

Question 42 options:

	Signaling.
	Rationalizing.
	Unbounding.
	Screening.

Expert Solution

Asymmetric Information problem arises when one party has more information than other party either before or after the transaction takes place. This problem leads to market failure.

Signalling was first developed by Michael Spence in regard to the asymmetric information prevailing in the economy. He proposed that if one part gives correct and proper information to the second and other parties through the use of specific signals then the communication gap can be closed and problems related to asymmetric information can be resolved. So, 1st option is correct

Under Screening, the action is taken by the party who doesn't possess the required information to know the information possessed by the person who actually has it. This leads to the diffusion of information in the market and close any information gaps. So, 4th option is correct

Rationalizing and Unbounding are not the techniques used for solving asymmetric information problems.

So, Signaling and Screeing are the correct choices

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Rahul Sunny answered 7 months ago

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