Asymmetrical information happens when one person in a deal knows more than the other person. This can mess up how the market works and lead to some problems.
Here are two major issues that can come up:
Adverse Selection: This is when buyers miss out on good products because they can't figure out which ones are high-quality. A good example is the used car market. Sellers know everything about their cars, like how well they run, but buyers don't. This might lead to a lot of bad cars, or "lemons," being sold instead of good ones.
Moral Hazard: This is when people take risks because they won't face all the bad results of those risks. For example, a person with car insurance might drive carelessly, thinking it doesn't matter since they are covered if something goes wrong.
These problems can make things unfair and can hurt both consumers and businesses in the end.
Asymmetrical information happens when one person in a deal knows more than the other person. This can mess up how the market works and lead to some problems.
Here are two major issues that can come up:
Adverse Selection: This is when buyers miss out on good products because they can't figure out which ones are high-quality. A good example is the used car market. Sellers know everything about their cars, like how well they run, but buyers don't. This might lead to a lot of bad cars, or "lemons," being sold instead of good ones.
Moral Hazard: This is when people take risks because they won't face all the bad results of those risks. For example, a person with car insurance might drive carelessly, thinking it doesn't matter since they are covered if something goes wrong.
These problems can make things unfair and can hurt both consumers and businesses in the end.