consumers and producers have perfect market information to make their decision. This leads to an efficient allocation of resources
Asymmetric information
Leads to market failure. This is when there is unequal knowledge between consumers and producers. This could lead to a misallocation of resources.
Imperfect information
information is missing, so an informed decision cannot be made, leads to a misallocation of resources. Consumers might pay too much or too little, and firms might produce the incorrect amount
Moral Hazard
individual takes on more risk than usual because they do not bear the full cost of the risk, e.g car insurance
