Asymmetric information happens when one side in a deal knows more than the other. This can cause problems in the market. Here’s how these issues work:
Imperfect Knowledge: Sometimes, buyers don’t know how good or bad a product really is. This can cause them to pay too much or too little.
Adverse Selection: When buyers can’t tell the quality of products apart, really good ones might be pushed out of the market. This leaves only low-quality options for people to choose from.
Moral Hazard: When one side takes chances because they don’t have to face all the bad results, it can lead to problems.
Together, these issues can mess up how well the market works and lead to a bad use of resources.
Asymmetric information happens when one side in a deal knows more than the other. This can cause problems in the market. Here’s how these issues work:
Imperfect Knowledge: Sometimes, buyers don’t know how good or bad a product really is. This can cause them to pay too much or too little.
Adverse Selection: When buyers can’t tell the quality of products apart, really good ones might be pushed out of the market. This leaves only low-quality options for people to choose from.
Moral Hazard: When one side takes chances because they don’t have to face all the bad results, it can lead to problems.
Together, these issues can mess up how well the market works and lead to a bad use of resources.