less information consumers have about product quality,

Question

Quizplus · Accepted Answer

Allocative inefficiency occurs when the level of output is not optimal, resulting in a loss of social surplus. When consumers have less information about product quality, they may not be able to make informed decisions and may purchase products that are of lower quality than they are willing to pay for. This results in a misallocation of resources and a loss of social surplus. Therefore, the greater the information asymmetry, the greater is the loss of social surplus due to allocative inefficiency.

Less Information Consumers Have About Product Quality