Asymmetric Information
Asymmetric information occurs in a market when one individual or a group knows the information more than the other who knows less in comparison, for example a producer knows the disadvantages that a consumer does not. It is studied mainly in 2 sides:
1. Adverse Selection - it happens before the transaction has been done when one party hides the information from another.
For example: a seller of a used-car knows the pros and cons of his/her car when the buyer does not.
2. Moral hazard - it occurs after a transaction when one changes his/her mind over a transaction they made because of the consequences and results.
For example: Unsafe car driver may drive carelessly after car insurance as they know insurance will cover all expenses and damage.
#economicterm #microeconomics #economy
@econotalkss
Asymmetric information occurs in a market when one individual or a group knows the information more than the other who knows less in comparison, for example a producer knows the disadvantages that a consumer does not. It is studied mainly in 2 sides:
1. Adverse Selection - it happens before the transaction has been done when one party hides the information from another.
For example: a seller of a used-car knows the pros and cons of his/her car when the buyer does not.
2. Moral hazard - it occurs after a transaction when one changes his/her mind over a transaction they made because of the consequences and results.
For example: Unsafe car driver may drive carelessly after car insurance as they know insurance will cover all expenses and damage.
#economicterm #microeconomics #economy
@econotalkss