Asymmetric information (HL)

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    Asymmetric information (HL)

    Asymmetric information: when buyers and sellers do not have equal access to information in a transaction.

    Sellers have more information: in the second hand car market and at the doctors/dentists there is unequal information. This is also the case for financial advisers. It could result in a market failure as consumers are less willing to consume due to a lack of trust, so even sellers who are truthful lose out on sales.

    Buyers have more information: when purchasing car or health insurance the buyer may know information about themselves which, had the seller known, would have adjusted the price. Also in the labour market, regulation prevents employers from gaining knowledge about the prospective employee that may unfairly impact their opinion, such as age.

    Government responses: the government may use legislation, like building regulations or legal contracts confirming no information has been withheld.

    Also the government could provide information. For instance food is labelled with nutrition guidance, whilst the income of consumers is usually validated against the tax office.

    Licences can also be used. For instance food stores must have licences stating what food can be sold.