Answer to Question #292851 in Macroeconomics for munna

Question

Consider the monopoly version of the hidden information problem. Suppose that both agents have the same cost function but different reservation levels of utility. How does the analysis change?

Answer 1

Information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This asymmetry creates an imbalance of power in transactions, which can sometimes cause the transactions to be inefficient causing market failure in the worst case.