Government Responses
Market Failure: Asymmetric Information
AO3·HL
Syllabus requirement
Legislation, regulation, and provision of information to reduce asymmetries and improve market functioning.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
This topic explains how asymmetric information — when one party in a transaction knows more than the other — causes market failure and how governments respond. It covers government tools such as legislation, regulation and provision of information, and also describes private responses like signalling and screening that reduce adverse selection and moral hazard.
