Question

The company that manufactures Screaming Chocolate Zonkers breakfast cereal finds that its sales​ collapse, it is forced into​ bankruptcy, and it defaults on its​ bonds, as a result of information on the filthy conditions in its​ factory, which had long been known to​ management, leaking out to the general public. This incident is best thought of as an example of

Answer 1

Answer:

The correct answer is:  asymmetric information in the financial markets.

Explanation:

Asymmetric information in the financial markets is spread when one of the two parties (buyers or sellers) within a transaction has more information than the other so can make decisions according to its own interest. If the buyer possesses more information than the seller, the value of the security is underpriced but if the seller has more information than the buyer, the security is overpriced.

In the case, Screaming Chocolate Zonkers's managers were aware of the poor structural conditions of the company for a long but this was kept among them. Only when this information was spread, the price of the company's bonds reflected the current situation of Zonker.