The reason for market failure due to the asymmetric information between the sellers and buyers.
Explanation of Solution
The problem of asymmetric information is referred to the problem of market failure that leads to a loss of net social welfare. The reason for the symmetric information is that buyer and seller possess altered information about the transaction price or cost. If the economy fails to avoid the asymmetric information, the market will fail to continue in future.
Asymmetric information: Asymmetric information is a situation in which one party of an economic transaction has less information than the other party.
Market failure: Market failure is a situation when the market fails to produce and distribute output efficiently.
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Chapter 17 Solutions
Microeconomics (9th Edition) (Pearson Series in Economics)
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