Interview
6.1: Market Economies
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AP Microeconomics notes from Unit 6, Section 1: These notes cover the "invisible hand" in free markets and market failures.
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1.
Describe the \"invisible hand\" present in free market economies.
Answer: Businesses are incentivized to meet societal demands to earn profit
2.
What is information asymmetry?
Answer: A situation in which one party is more informed than another because of the possession of private information
3.
What is adverse selection?
Answer: A type of information asymmetry in which parties involved in a transaction fear that there is negative information about the other party, goods, or services that they may not know
4.
What is a moral hazard?
Answer: A market failure that results from a change in the buyer’s behavior after a purchase as a result of the buyer’s belief that losses will be passed onto the seller
5.
What is a market failure?
Answer: A situation in which the free-market system fails to satisfy society’s wants
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