Question

Grace wants to sell her motorcycle, and Damarius is looking for a used motorcycle to buy. Damarius takes it for a test drive. Grace knows that the clutch is going out on her motorcycle, the fuel filter is leaking, and the tires will need to be replaced soon. If she does not disclose this information to Damarius and he cannot tell from his test drive, this is an example of:

a. an external cost.
b. asymmetric information.
c. an external benefit.
d. a public good.

Answer 1

Answer:

The correct answer is the option B: Asymmetric information.

Explanation:

To begin with, in the microeconomics theory the concept known as "Asymmetric information" refers to a particular situation that can happens when two economic agents are going to have a transaction between them and one of the parties, most commonly the one that sells, is aware or has in his power information that can harm the other party or that puts the first one in a situation of more power due to the fact that the other one does not possess that information. So in that situation the first one who has the information is taking an advantage over the other and that makes it totally unethical because is acting in bad faith.