How does information asymmetry affect consumer demand in markets?

Information asymmetry occurs when one party in a transaction has more or better information than the other. In markets, this can lead to consumers being unsure about the quality of a product or service. For example, if a used car dealer knows that a car has hidden problems but the buyer does not, the buyer might pay too much or avoid buying altogether out of fear. This uncertainty can reduce consumer demand because people may hesitate to make purchases if they feel they don’t have enough information. Ultimately, when consumers are unsure, they may choose to buy less or look for alternatives where they feel more informed and secure.