Why imperfect and asymmetric information can lead to market failure
Markets work best when buyers and sellers know exactly what they are buying and selling. When one side knows far more than the other, or both sides lack key facts, people make bad decisions and resources get wasted.
Real World
In the 2008 financial crisis, mortgage-backed securities were sold to investors who lacked the information that banks held — classic asymmetric information causing catastrophic market failure.
Exam Focus
Distinguish asymmetric from imperfect information clearly; for 'evaluate' questions, address whether regulation or signalling can correct each type.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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