1.3.4 Information gaps

Question 1

what is an underlying assumption of a free market?

Answer 1

that there is perfect information in the market = potential access to the same information
= This means that buyers and sellers have exactly the same level of information about the good/service
= called symmetric information

Question 2

symmetric information

Answer 2

means that consumers and producers have perfect
market information to make their decision. This leads to an efficient
allocation of resources.

Question 3

asymmetric information

Answer 3

where buyers and sellers have diff erent amounts of information, with one group having more information than the other.