Microeconomics › Section P · Information, risk, and insurance › Topic P.1
Imperfect and asymmetric information
The demand-supply model quietly assumes that buyers and sellers know what they are trading. When one side knows more than the other, good products can be driven out, prices can mislead, and markets can shrink or vanish, unless people find ways to share what they know.
In this topic
- When one side knows more
- Imperfect and asymmetric information
- The market for lemons
- Worked example: a market unravels
- Thin markets and price as a signal
- Reassurance from sellers
- Signalling and screening
- Worked example: a signal that works
- Labour and credit markets
- The principal-agent problem
- Common mistakes to avoid
- Key takeaways
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