ECS3701 ASSIGNMENT 2 OF 2022
ECS3701 1st semester
Unique number 174996
Due date 20 April 2022
Material All learning Units
Note: You will be severely penalised if you plagiarise. Use your own words as
much as possible.
2.01 Explain how adverse selection influences the financial structure.
[10]
Adverse selection refers generally to a situation in which sellers have
information that buyers do not have, or vice versa, about some aspect of
product quality. In other words, it is a case where asymmetric information
is exploited. Asymmetric information, also called information failure,
happens when one party to a transaction has greater material knowledge
than the other party.
The lemons problems the reason that marketable securities are not the
primary source of financing in most places. It also explains why stocks
are not the most important source of financing for American businesses
Transaction costs, asymmetric information, and the free-rider problem
explain why most external finance is channelled through intermediaries.
Most individuals do not control enough funds to invest profitably given
the fact that fixed costs are high and variable costs are low in most areas
FOR ACCADEMIC NEEDS CONTACT /0651609781
ECS3701 1st semester
Unique number 174996
Due date 20 April 2022
Material All learning Units
Note: You will be severely penalised if you plagiarise. Use your own words as
much as possible.
2.01 Explain how adverse selection influences the financial structure.
[10]
Adverse selection refers generally to a situation in which sellers have
information that buyers do not have, or vice versa, about some aspect of
product quality. In other words, it is a case where asymmetric information
is exploited. Asymmetric information, also called information failure,
happens when one party to a transaction has greater material knowledge
than the other party.
The lemons problems the reason that marketable securities are not the
primary source of financing in most places. It also explains why stocks
are not the most important source of financing for American businesses
Transaction costs, asymmetric information, and the free-rider problem
explain why most external finance is channelled through intermediaries.
Most individuals do not control enough funds to invest profitably given
the fact that fixed costs are high and variable costs are low in most areas
FOR ACCADEMIC NEEDS CONTACT /0651609781
