A market characterized by asymmetric information will have an equilibrium price if at that price
A)quantity demanded equals quantity supplied when all participants have the same information.
B)quantity demanded equals quantity supplied given prevailing information levels.
C)quantity demanded equals quantity supplied under perfect information.
D)quantity demanded exceeds quantity supplied if suppliers are better informed (and vice versa).

Question

Quizplus · Accepted Answer

In a market with asymmetric information, the equilibrium price occurs where the quantity demanded equals quantity supplied given prevailing information levels. This is because in a market with asymmetric information, buyers and sellers don't have the same level of information about the product, leading to market inefficiencies. As a result, the equilibrium price will be different from the price that would result under perfect information (C). Additionally, it is not necessary that the quantity demanded exceeds the quantity supplied if suppliers have better information (or vice versa).

A Market Characterized by Asymmetric Information Will Have an Equilibrium