Chapter 16, Problem 1RQ

To determine

The market difference with complete information and asymmetric information.

Explanation of Solution

Every market has a large number of sellers in the market and the sellers are price takers and there is freedom of entry into the market and exit from the market. Thus, there will be different markets with differences in the level of information available with each of them. When all the sellers and buyers in the market have perfect knowledge about the goods and services exchanged, then each will have an equal level of information in the market and this type of market is known as perfectly competitive markets.

When there are information asymmetry in the market, either the seller or the buyer in the market will have more information about the goods and services. This means that there will be differences in the level of information that each seller and the buyer has in the market.

Economics Concept Introduction

Asymmetric information: asymmetric information prevails when there are differences in the level of information available with the seller and the buyer. When any one party has more knowledge about the goods and services exchanged in the market, then it is imperfect or asymmetric information.