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AP® Microeconomics

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Market Failure: Information Asymmetry for Toys

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Which of the following is an example of the market failure known as information asymmetry?

A

Employees at a toy factory want to spend part of each shift playing with the toys while the owners of the factory want employees to work the entire day in order to help them maximize profits.

B

Consumers are hesitant to purchase wooden toys because they are worried that the manufacturers may have used lead-based paint.

C

The CEO of a toy corporation uses a corporate jet to go on private trips while stockholders express concern that the additional expenses negatively impact profits.

D

Toy manufacturers overproduce toy cars because the government imposes a minimum price above the current market equilibrium.

E

Toy manufacturers overproduce dolls because, when calculating costs of production, they do not consider the impact on the community of the chemicals they dispose of in a local river.