Where there is asymmetric information between buyers and sellers,
A) product shortages will occur at the equilibrium price.
B) product surpluses will occur at the equilibrium price.
C) markets can produce inefficient outcomes.
D) markets will fail due to the "free-rider problem."

Question

Quizplus · Accepted Answer

Asymmetric information can lead to markets producing inefficient outcomes because buyers and sellers do not have the same information about the product or service being exchanged. This imbalance in information can lead to issues like adverse selection, moral hazard, and a breakdown in trust between the two parties. For example, if car sellers have more information about the quality of the car than buyers, then buyers may be hesitant to purchase cars at the equilibrium price, leading to a market inefficiency.

Where There Is Asymmetric Information Between Buyers and Sellers