Question

Describe three market-based solutions to address asymmetric information.

Answer 1

Answer:-

Asymmetric information is a situation in which one party in a transaction has more information as compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. This could be a harmful situation because one party can take advantage of the other party's lack of knowledge.

Three market based solutions to address this problem are:

1. Asking producers to provide guarantees, warranties and after sale service for products. This will make consumers confident about the product quality.

2. Monitoring each other through market reports and surveys to keep an eye on each other's credibility

3. Get products verified by external product verification so as to be sure of the product quality.