Unit 2.10 · Market Failure: Asymmetric Information

Asymmetric Information

AO2HL

Syllabus Requirement

Occurs when one party in a transaction has more or better information than the other, leading to inefficient outcomes.

Assessment Objectives
AO2Application and Analysis

Summary

Asymmetric information occurs when one party in an economic transaction has more information than the other, leading to market inefficiencies and potential market failure. This imbalance can distort decision-making, resulting in consumers and producers not maximizing their surplus. Understanding asymmetric information is important for analyzing how markets operate and the implications for resource allocation.