Determine if the situations below represent problems caused by asymmetric information. I. Unrest in the Middle East causes oil speculators to buy up oil futures, driving gasoline prices higher. || Frances lives in an apartment above a restaurant, and her apartment always smells like burgers and fries. She has tried unsuccessfully to get the restaurant owner to remedy the problem. Situation | and II are caused by asymmetric information. Only situation I is caused by asymmetric information. Only situation II is caused by asymmetric information. Neither situation I nor II is caused by asymmetric information. 2. In September of 2008, the Federal Reserve announced a "bailout" for AIG, which had gone bankrupt after having its credit rating downgraded in the wake of the financial crisis of 20072008. Can you think of an argument against such a bailout that is related to the material in this chapter? Bailing out financial institutions can lead to moral hazard. Bailing out financial institutions can lead to adverse selection. Bailing out financial institutions can lead to signaling. None of the material in this chapter is related to arguments against bailouts. Home cleaning services and general contractors often advertise that they are bonded. What this means is that the seller of the service has put up money with a third party that is available to the buyer if, for example, the cleaners damage or steal property or if the general contractor fails to complete the project or completes it in a substandard way. What is the purpose of bonding? Bonding provides a good incentive for the contractor to not engage in the moral hazard of theft or failing to complete the project. Bonding provides a good incentive for the contractor to engage in the moral hazard of theft or failing to complete the project. Bonding provides a good incentive for the contractor to not engage in adverse selection Bonding provides a good incentive for the contractor to engage in adverse selection. The following situations represent problems caused by asymmetric information. Determine whether they represent problems of moral hazard or adverse selection. I. Karol is halfway to work before he realizes that he forgot to lock the back door. Because he has renter's insurance, he decides it is not worth being late to work just to go home to lock the door. ||. Joanne applies for a job as a parttime manager at a fastfood restaurant. Her MBA makes her incredibly overqualified for the job, yet the position goes to someone else who doesn't even have a college degree. \"I. The potential costs of long-term care (such as a nursing home stay) can be very high and are also very uncertain. Because of this, the private market for long-term care in the United States has remained fairly small. All three situations represent moral hazard. All three situations represent adverse selection. Situation | represents moral hazard and situation II and I\" represent adverse selection. Situation | and II represent moral hazard and situation I\" represents adverse selection. Situation | and II represent moral hazard and situation III represents adverse selection. George Akerlof's model of the used car market results in a market where only lemons are sold and there is no market for high-quality used cars. But, in fact, we observe that the used car market is a robust market where millions of used cars of varying quality are sold. Does that mean Akerlof's model is wrong? Why or why not? Yes, because his model shows that adverse selection has the potential to eliminate markets. Yes, because his model shows that adverse selection will always eliminate markets. No, because his model shows that adverse selection has the potential to eliminate markets. No, because his model shows that adverse selection will always eliminate markets