Information asymmetry is a problem when:
A)a buyer and seller have opposing incentives.
B)a buyer and seller have aligned incentives.
C)a market is highly efficient.
D)a market is highly inefficient.

Question

Quizplus · Accepted Answer

Information asymmetry occurs when one party in a transaction has more information than the other party. In this situation, the party with more information has an advantage in negotiations, which may lead to a situation where the buyer and seller have opposing incentives. For example, a used car salesman may have more information about a car's history than the buyer and may be motivated to sell the car for the highest price possible, while the buyer may be trying to get the lowest price possible. This creates a situation where the buyer and seller have opposing incentives.

Information Asymmetry Is a Problem When