Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Information asymmetry can lead consumers to understate their true willingness to pay, resulting in market inefficiencies.
B
Consumers with perfect information always pay the maximum price they are willing to pay.
C
The free rider problem is a direct consequence of information asymmetry in public goods.
D
Information asymmetry can prevent the efficient allocation of resources in competitive markets.
E
Consumers are always aware of their true demand regardless of market conditions.
Understanding the Answer
Let's break down why this is correct
Answer
Information asymmetry occurs when one party in a transaction has more or better information than the other. This can lead to consumers making poor choices because they might not fully understand the quality or value of a product. For example, if a car dealer knows a vehicle has hidden problems but doesn’t share this information, a buyer might pay too much, which reduces market efficiency. When consumers cannot make informed decisions, demand may decrease for products that are perceived as risky or uncertain. Therefore, information asymmetry can negatively impact both consumer demand and market efficiency by creating mistrust and reducing overall market confidence.
Detailed Explanation
Other options are incorrect because Some people think that not knowing enough can help them pay less; It's a common belief that if consumers know everything, they will always pay the highest price.
Key Concepts
Information Asymmetry
Consumer Demand
Market Efficiency
Topic
Consumer Demand and Information Asymmetry
Difficulty
easy level question
Cognitive Level
understand
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