Microeconomics (2nd Edition) (Pearson Series in Economics)
Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 16, Problem 1Q
To determine

Meaning and types of asymmetric information.

Expert Solution & Answer
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Explanation of Solution

Every transaction has a buyer and a seller who interact with each other to derive utility. When a situation arises where one party in the transaction has more information regarding any good or service in particular, such a situation is referred to as a situation of asymmetric information.

There are essentially two types of asymmetric information. First is called “Hidden Characteristics” refers to some particular characteristic of a good/service that only one party is aware about. Second is called “Hidden actions” in which either the buyer or the seller conducts certain action that is relevant with regards to the transaction but is not known to the other party.

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