Question

Gerda, a real estate agent, is selling a moderately priced house in a subdivision. She knows from her uncle that the factory being built half a mile from the subdivision will be manufacturing dog food, using a process that creates a very strong odor that permeates the surrounding neighborhood. A buyer, who is unaware of the type of factory under construction, makes an offer on one of the houses Gerda is selling, and within a short time, the deal goes through. What does this scenario best illustrate?

Answer 1

Answer:

The correct answer is, Information Asymmetries.

Explanation:

Information Asymmetry is a concept in contract theory and economics, in which there are two parties involved, and out of which one party has better or more information than the other party.

So in this example, Gerda is a real state agent and she is selling a house to a party and she knows by her resources that a factory is soon opening in the area where she is going to finalize a purchase deal with the other party. But the buyer is unaware of the fact that a factory is going to open near the house which he is going to purchase. So this who scenario best illustrates the concept of Information Asymmetries.