Unit 2.10 · Market Failure: Asymmetric Information
Private Sector Responses
AO3HL
Syllabus Requirement
Signalling (from informed parties) and screening (by uninformed parties) as tools to reduce information gaps.
Assessment Objectives
AO3Synthesis and Evaluation
Summary
Asymmetric information arises when one party in a market has more or better information than the other, leading to potential market failure. Private sector responses, such as signalling and screening, can help mitigate the effects of information asymmetry without government intervention, improving market outcomes and efficiency.