asymmetric information

the two possible equilibria of asymmetric information

1) all cars sell at the average price 2) lemons drive good cars out of the market

the principle agent problem

economic relations often have the form of a principle who contracts with an agent to take actions that the priciple cannot observe directly . Problems can arise when the principles and the agents incentives dont coincide

symmetric information

if both sellers and buyers have the same information. the market is thus efficient because goods go to the people who value them the most

moral hazard

is a problem of hidden action

adverse selection

is a problem of hidden information. Bad risks can drive good risks out the market.

asymmetric information definition

situation in which one party to a transaction has more information than another

the market for lemons

when buyers cannot judge a products quality before purchasing it, low quality products (lemons) may drive high quality products out of the market.