What is asymmetric information?

Asymmetric information refers to a situation where one party in a transaction has more or better information than the other party. This typically occurs in markets where one side, often the seller, possesses more details about the product or service than the buyer. For instance, in the used car market, sellers might know about defects that buyers are unaware of, giving sellers an advantage in negotiations.

This imbalance can lead to suboptimal outcomes in the market, such as adverse selection and moral hazard, as consumers may make poorly informed decisions based on the incomplete information available to them. The option identifying unequal access to information accurately captures this concept, illustrating the implications of having one party at a disadvantage during transactions.

In contrast, other options describe scenarios that do not align with the concept of asymmetric information. Equal information implies a balanced knowledge that does not create any advantage for either party, while complete transparency indicates all parties have full knowledge of all relevant details, eliminating any asymmetry. Additionally, information that benefits only producers does not encompass the broader definition of asymmetric information, which is not limited to the interests of one party alone.