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2011 HW 7 Fall

2011 HW 7 Fall - Seongjae Lee Brigham Young University...

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Unformatted text preview: Seongjae Lee Brigham Young University Department of Finance ManEc 453 Money, Banking and Financial Markets Problem Set #7 Due: October 31, 2011 1) Give an example from your own life wherein you have encountered : a) Adverse Selection I tried to buy a camera on KSL.COM because sometimes it was cheaper than EBAY. The problem is KSL doesn't have seller's credit rating ad EBAY does. I trusted seller who said the camera works perfect. But, it turned out there was something wrong with the camera and it didn't work properly. b) Moral Hazard One of my friends got into a car accident. The injury was not severe and he needed only light treatment. But, the hospital convinced him that he might need some extra treatment. So that, the hospital could ask more money to the insurance company. Of course my friend also could get paid more by the insurance company. 2) a) Describe the problem of asymmetric information that an employer faces in hiring a new employee: 1. when an employer needs an employee who has excellent skills in Excel, the employee could lie about 1....
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