Private Sector Responses
Market Failure: Asymmetric Information
AO3·HL
Syllabus requirement
Signalling (from informed parties) and screening (by uninformed parties) as tools to reduce information gaps.
Assessment objectives
AO3 Synthesis and Evaluation
Higher LevelThis topic is assessed at HL.
Summary
This topic explains private sector responses to asymmetric information, where one party in a market knows more than the other. It describes signalling (actions by the better-informed party to reveal quality) and screening (efforts by the less-informed party to obtain information), how these reduce information failure and improve allocative efficiency, and their practical limits and equity concerns.
