ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -"Asymmetric information” is a term that refers to when one party in a transaction is in possession of more information than the other. In certain transactions, sellers can take advantage of buyers because asymmetric information exists whereby the seller has more knowledge of the good being sold than the buyer.

Detailed explanation-2: -Asymmetric information arises when one party to an economic transaction has more or better information than another and uses that to their advantage. This causes market failures, including examples like adverse selection and the so-called lemons problem.

Detailed explanation-3: -Asymmetric information is a situation in which one party to an economic transaction has less information than the other party.

Detailed explanation-4: -Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited.

Detailed explanation-5: -1. Why can asymmetric information between buyers and sellers lead to a market failure when a market is otherwise perfectly competitive? Asymmetric information leads to market failure because the transaction price does not reflect either the marginal benefit to the buyer or the marginal cost of the seller.