Occurs when there is asymmetric information, which is when either the buyer or the seller has more info than the other.
How can imperfect info lead to over production and market failure?
E.g. in the markets for unhealthy foods (e.g. sugary drinks) consumers may not be fully aware of the health effects of these goods.
Therefore, they may overconsume them, causing too many resources to be allocated to producing these goods. This is inefficient and results in market failure.
How can imperfect info lead to under production and market failure?
E.g. in the markets for education and healthcare (e.g. vaccines) consumers may not be fully aware of the benefits of consuming the good.
Therefore, they may under-consume them, causing too few resources to be allocated to producing these goods. This is inefficient and results in market failure.
