Consider the following statements. When there is hidden or asymmetric informatio

Question

Consider the following statements. When there is hidden or asymmetric information, some feasible gain or surplus may fail to be achieved through market exchange. When there is hidden or asymmetric information, consumer protection laws or warranties offered by sellers can help to recover some of the surplus or gain that would otherwise have been lost. In principle, consumer protection laws should generate more surplus than privately provided warranties. Which of these general lessons can you infer from the results of this experiment? II only Ill only I only I, II, and III I and II only I and III only

Explanation / Answer

Correct choices are 1 and 2 since they are directly related to the theory of asymmetric information. Third is a clear violation since privately provided warranties are the ones that provide maximum surplus.

Hence it should be F.

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