If information is fully verified, which outcome is most likely?

• A. Efficiency declines and welfare decreases.
• B. Efficiency improves, reducing adverse selection and moral hazard.
• C. Information asymmetry persists and markets fail.
• D. Government intervention becomes unnecessary.

Answer: (B)

Fully verified information removes information asymmetry between buyers and sellers. With perfect information, markets can price goods and risks correctly, and contracts can be written to align incentives. That shrinks adverse selection and moral hazard, because parties no longer base decisions on hidden attributes or hidden actions. As a result, resources flow to their most valued uses and overall welfare rises, so efficiency improves. This is the best description: efficiency improves, reducing adverse selection and moral hazard. The other statements don’t fit: efficiency wouldn’t decline with better information, information asymmetry wouldn’t persist, and while intervention would be less necessary, it wouldn’t be guaranteed to be completely unnecessary.