ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Asymmetric information exists in certain deals with a seller and a buyer whereby one party is able to take advantage of another. This is usually the case in the sale of an item. For example, if a homeowner wanted to sell their house, they would have more information about the house than the buyer.

Detailed explanation-2: -Information asymmetry creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient, causing market failure in the worst case. Examples of this problem are adverse selection, moral hazard, and monopolies of knowledge.

Detailed explanation-3: -The 2007–2008 subprime loan crisis was a classic example of the way asymmetric information can skew a market and cause market failure.

Detailed explanation-4: -An e-business environment results in information asymmetry because buyers cannot physically evaluate the quality of products and easily assess the trustworthiness of sellers. Product and seller quality are communicated through website signals.