Your answer is C: Asymmetric Information
Mark as brainliest?
The presence of asymmetric information in financial markets leads to adverse selection and moral hazard problems that interfere with the efficient functioning of financial markets.
Asymmetric information is when one of the parties in a transaction has more information than the other party in the transaction. The party with more information has an advantage over the party with less information.
Effects of asymmetric information
1. Adverse selection : This is when either the buyer or the seller has more information about a product and uses this information to their advantage.
For example, assume you want to buy a new phone. You walk up to a phone shop and pick a phone you like. The phone has a fault which you are are not aware of but the seller is aware of the fault. The seller sells you the phone at the price of a phone without a fault. If you were aware of the fault, you probably would not have bought the phone or would have negotiated for a lower price.
2. Moral Hazard : this is when a party whose risk is insured acts in a different way than he would have acted if his risks were not insured.
For example, an individual purchases a car insurance. Before the purchase of the insurance, the individual did not exceed a certain speed limit but after the insurance was purchased, he begins to drive at an extremely high speed
To learn more about asymmetric information, please check here : https://brainly.com/question/14771717?referrer=searchResults
