Asymmetric information
Definition. Asymmetric information exists when one party in a transaction possesses more or better information than the other, preventing both sides from making fully informed decisions. This imbalance can lead to a misallocation of resources and is a source of market failure.
It gives rise to adverse selection before a deal and moral hazard after one. Remedies include signalling, screening, regulation and the provision of information by third parties.
This term belongs to Asymmetric Information in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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