Test Prep For AP® Courses


Which of the following is a likely consequence of a market having imperfect information?

  1. Equilibrium price and quantity will be obtained
  2. Markets will be characterized by a small number of buyers and sellers
  3. Tax revenue will increase
  4. The market will experience positive externalities
  5. The quality of the products sold in the market will be very high

John buys a high-quality auto insurance policy and chooses to drive more recklessly as a result. This behavior is an example of ____________.

  1. moral hazard
  2. imperfect information
  3. asymmetric information
  4. being risk-neutral
  5. adverse selection

Mark applies for a loan from a bank for a project that he is working on. He knows much more than the bank about the probability that the project will fail. This situation best describes which phenomenon in the credit market?

  1. discrimination
  2. negative real interest rate
  3. risk-neutral behavior
  4. rent-seeking
  5. moral hazard