Asymmetric Information

When one party in an economic transaction knows information pertinent to the transaction that he or she withholds from the other party in an attempt to get a better deal for him or herself. For example, if a used car dealer knows that a car he’s selling has been in an accident, but does not reveal this to the buyer. Asymmetric information is a source of market failure, since in some markets resources will be mis-allocated due to asymmetric information.

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