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.