Chapter 18, Problem 1QR

To determine

Asymmetric information and its relevance in medical care.

Explanation of Solution

The asymmetric information is the situation in which one party has more information than the other party. Thus, it is the situation where there is imbalance between the market players regarding the information. This information imbalance can be of various types such as the information regarding the quality of the product, quantity of the product and the cost etc.

The medical care is the area where the asymmetric information plays a very crucial role. The doctors know more than the patients and the patients will not have any technical terms of the medical facts. These imbalances make the asymmetric information. This helps the party which has higher information to exploit the party with the lower information. This is the case seen mostly with the health care insurances. The individual knows more than the insurance companies. They would cover up the information which will be against the insurance policy norms and regulations. Thus, the information asymmetry causes the increased burden for the insurance companies.

Thus, the information asymmetry causes the problems in the health care sector in various forms. This differences in the information availability is the main reason why the health care sector is dependent on.

Economics Concept Introduction

Asymmetric information: The asymmetric information is the situation in which one party has more or better information regarding the product or service than the other party.