Which of the following situations best demonstrates a market failure due to asymmetric information?

CA Foundation · Business Economics · MTP · April 2025
Which of the following situations best demonstrates a market failure due to asymmetric information?
(A) A. A monopolist exploiting market power by reducing supply
(B) B. Consumers buying substandard products because they lack information about quality
(C) C. The government providing public goods like street lighting
(D) D. A natural monopoly where economies of scale drive market concentration

Suggested Answer and Working Notes:

Correct Answer: Option (B)

B. Consumers buying substandard products because they lack information about quality

Topics: Public Finance

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