Asymmetric Information
Market Failure: Asymmetric Information
AO2·HL
Syllabus requirement
Occurs when one party in a transaction has more or better information than the other, leading to inefficient outcomes.
Assessment objectives
AO2 Application and Analysis
Higher LevelThis topic is assessed at HL.
Summary
Asymmetric information occurs when one party in a market transaction has more or better information than the other, creating incentives for adverse outcomes and market failure. This topic covers how increasing access to information (for example by lowering its price or improving literacy) can reduce the problem, but also notes that firms may exploit information advantages and that too much information can overwhelm consumers, so government intervention is often needed.
