Ans. according to the buyer perspective, information asymmetry is the information that buyers obtain related to the product. They have no complete information and having some doubts about the quality and utilization of the product. Information asymmetry creates a problem for the buyer after purchase and they never satisfied with the performance of the product according to their requirements. According to the seller perspective, information asymmetry is the information about the selling condition in the market and having the wrong prospection about the buyer of the product. Seller considers that they can easily sell the products with its defects and buyers have no idea about the flaws of the product.

According to the buyer perspective, when the buyer has asymmetry information about the product then it will take adverse selection about the purchase of the product and the buyer has to face some issues after purchasing the products. So incomplete information goes to adverse selection which creates a problem in the future. According to the seller perspective, the seller has asymmetric information about the buyer approach and its demand and it wants to cover its cost through its sales of the products. Adverse selection is taken by the seller to sell its product to those who are not willing to purchase the product according to their actual requirements.

            Soft selling may be a successful signal in case of asymmetry information and give benefit to some extent to both buyer and seller because when the product has some issues and its selling in the market create a problem then the adverse selection is good for both parties and they have to provide some benefit to both parties according to their little satisfaction. The seller can cover it some portion of the cost and buyers get some benefit from the product so both parties obtain a benefit to some extend and asymmetry information and adverse selection are also give benefit to both parties according to their requirements.  

1.       Describe a moral hazard problem your company or community is facing that comes with enough information to answer the following questions: What is the source of the asymmetric information? Who is the less informed party? What transactions are not being consummated as a result of the information? How could you use signalling or screening to make transactions go more smoothly? Provide advice you think best suited to improve the overall situation.

Ans. asymmetric information is used to create an atmosphere that is beyond real facts. Different sources are used to generate asymmetric information like media outlets and educational sources are used to create asymmetric information in society. In business, asymmetric information helps to generate results according to companies who want to change the outcomes according to their requirements.  Normally seller is responsible for the asymmetry information and it imposes the information according to its requirements and uses it in its benefits. Normally the buyer is considering a less informed party because it only belongs to purchase the product but the seller knows all the flaws of the product and any doubts about the product only known by the seller.

After the result of asymmetric information, the buyer may go to purchase the product and accept all flaws after the payment amount for the products. The active transaction takes place after the asymmetric information spreads in the market and between the parties. Signalling and screening procedures are helpful for the parties to manage the transactions according to better requirements. Signalling is helped to induce the signals about the asymmetric information and provide the parties with better information and manage the issue of asymmetric information problems.

Screening is helpful to force the seller to present better information for making a better decision to purchase the product. For making better the business transaction, in the environment of asymmetric information, both signalling and screening are helpful to manage the business in a better way for both parties. So both parties have to show less asymmetric information in the market and manage the issues with mutual consent according to business transaction and generate more profit. Because when the market information is wrong every person related to the market has to face issues and settle down according to the requirements of all parties.

Version 2
Soft selling occurs when a buyer is sceptical of the usefulness of a product and the seller offers to set a price that depends on realized value. For example, suppose you are trying to sell a company a new accounting system that will reduce costs by 10%. Instead of naming a price, you offer to give them the product in exchange for 50% of their cost savings. Describe the information asymmetry from the perspective of both sides, the adverse selection problems from the perspective of both sides, and why and how soft selling can be a successful signal.

A group in correlation has information from another group that follows the other party to deal with it in terms of making the study of decisions important and they use to deal the information asymmetry more according to the economic theory. During power transactions, an imbalance is created because of the unequal distribution of information. An example is the agreement of a knowledgeable group with the less knowledgeable group on any kind of decision they make in their adverse selection. These situation losses the charm of the less knowledgeable group because of the agreement as in if there happens any issue and they have less information regarding this group then they cannot do anything separately and they cannot also retaliate because of that group. The performance analysis needs to be managed in the way it is written in the agreement and hence it is going to give a commanding authority to both the groups involved in it.

To alleviate the scepticism system of the buyer, the soft selling company is going to provide a new accounting system to overcome this issue. It will save the 50% cost of the buyer as the buyer will use it for free. This system will provide profit to the seller because of the exchange rate it is offering to the buyer. The cost would be reduced to 10% however the buyer will be unaware of this fact while they both seller and buyer were agreeing upon this negotiation. Rather than providing the buyer the cost-saving ratio of 50% this system can be cheaper for the buyer to purchase and it could save a large amount of money of buyer as well. In future, in this case, adverse selection can be a problem for buyer and seller both as then expected the buyer can get more money through this system.

Describe a moral hazard problem your company or community is facing that comes with enough information to answer the following questions: What is the source of the asymmetric information? Who is the less informed party? What transactions are not being consummated as a result of the information? How could you use signalling or screening to make transactions go more smoothly? Provide advice you think best suited to improve the overall situation.

                An example of moral hazard you can say the best example of moral Hazard is the insurance especially car insurance that could be of Statefam, progressive and Allstate form as well. Based on the behaviour of the customer of any other event happened to the customer these insurance companies provide benefits to the customers according to the agreement which has made for them. The agreements have been finalized according to the customer's demand and if customers do not take care of the agreement as if they disagree the moral hazard results differently.  As a driver is over speeding and he is not taking any kind of safety feature if he is insured with some of the company under an agreement then he can be provided with an insurance amount from the company.

The insurance provider should be well known about any kind of change the customer wants to have in the agreement after contract. The main thing which makes this contract successful is the way with which they provide information to the agreement or insurance provider. Different people have different opinions and the best part is that it makes people more involved in the matters as to say different aspects perfectly and efficiently for sure. It gives a lot of benefits to the people in terms of making the aspects more demanding and allowing people to predict more appropriate and more efficient services like insurance to people. Ordinarily, the merchant is answerable for the asymmetry data and it forces the data as indicated by its necessities and utilizations it in its advantages. The dynamic exchange happens after the awry data spread in the market and between the gatherings. Flagging and screening systems are useful for the gatherings to deal with the exchanges as indicated by better prerequisites.