Asymmetric information and market disequilibrium Essay

Asymmetric information and market disequilibrium - Essay Example Evidences state that asymmetric information has resulted in adverse selection and under provision or lack of trade (Cawley & Philipson, 1999, p.827). In the real markets cases often arise when the seller knows more about the product being traded than the buyers. As for example in case of second hand car market, the seller knows more about the car than the buyer. It may be the other way round also where the buyer posses more information than the sellers as for example in insurance market, the buyers of the insurance usually is more aware about their risks than the insurance company selling them the insurance. Labor market can be considered as another case where a labor trying to get a job is more aware of the fact that how able he is or she in convincing the employer to bag the job (Economics of organization, slide 4-6). The market of used car will be used as a model where the asymmetric information leads to the absence of trade in that market. The prediction of the conditions for the used cars is very hard to estimate. Various parameters to judge the conditions may be appearance of the car, existence of otherwise of a guarantee with the car, date of manufacturing and so on. But here the assumption will be that the buyer has only two sets of expectations or information in his mind that is the car is either good or the car is bad. The potential buyer also does not have the determination power of the condition of the car in ex ante situation (Economics of organization, slide 6). The seller is well informed about the condition of the car. If the car is in bad condition, the seller does not have the incentive to reveal the fact (Asymmetric Information, n.d). The willingness of the seller to sell a product is expressed in terms of reservation price. The reservation price of the seller is the price that the seller would accept for the object (Adverse Selection, n.d., p. 1) and it depends obviously on whether the car is good or bad. The reservation price of the seller is provided in the table below: Reservation Price Good condition Bad Condition $ 10, 000 6,000 Table 1. Similarly the buyers also evaluate the condition of the car which is also their reservation price (Onuma, n.d., p. 3). Now common information available to everyone is that half the sellers are selling good cars and half the sellers are selling bad cars. The reservation price of the buyer is provided in the table below: Reservation Price Good condition Bad Condition $ 11,000 7,000 Conjecture of the buyer In case of a risk neutral buyer the maximum amount he or she willing to pay for a used car is given in the expectation calculation of the buyer as given by, , Where E (B) = Expected buying price & probability of half of the sellers selling bad cars= probability of half of the sellers selling good cars= Now if the buyer gets to know about the reservation price of the seller, then he or she will work out the price calculation and will accordingly find that at the price only the selle r of the bad car will be willing to sell the car because the sellers of only bad car’s reservation price is above $ 9,000 and the seller of the good cars’

Health of children living in poverty in hong kong Essay

Health of children living in poverty in hong kong - Essay Example Acording to statistics in 2005, a family of three took home $8,000 while that of four and two earned a low income of $9,800 and $6,400 respectivley. Analysts have intimated that the growing disparity between the rich and the poor is one of the greatest contributor to the poor education levels of the children in Hong Kong as there is no possibility of bridging it to make things better. In essence, the rich only associate with the rich while the poor have no option other than to keep by themselves meaning that it is a continuing cycle of poor education access for the poverty stricken because they cannot free themselves from it. According to the General Household survey of 2012 (89), a significant percentage of the population above 15 years and less than 65 is economically inactive in Hong Kong hence explaining the high levels of poverty in the region. The statistics also shows that Sha tin, Kwai Tsing, Kwun Tong, Wong Tai Sin, Yuen Long, and Tuen Mun are the principle districts in Hong Kong that have continued to register high numbers of poor households. Ideally, child poverty tends to have an effect on the feeding of the same in that it creates malnutrition for those affected by the scourge because these children cannot afford to feed properly as per the nutrition requirements. Most of the children drop out of school because they have to fend fro themselves rather than study because their parents cannot afford to put them through school. Other than this, children living in poverty tend to have self-esteem issues as they tend to feel marginalized and humiliated because of their non-desirable financial status hence making them to avoid going to school(Ngo 2013). Poor health and poverty also means that these children are likely to fail attending school because they are forced to help their parents in fending especially those from single parent households.. On other the other hand,