purchase insurance. The chapter on financial markets (markets for stocks and bonds) will show that the

problems of imperfect information can be especially poignant. We cannot eliminate imperfect information,

but we can often manage it.

16.1 The Problem of Imperfect Information and Asymmetric Information

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Analyze the impact of both imperfect information and asymmetric information

• Evaluate the role of advertisements in creating imperfect information

•

Identify ways to reduce the risk of imperfect information

• Explain how imperfect information can affect price, quantity, and quality

Consider a purchase that many people make at important times in their lives: buying expensive jewelry. In May

1994, celebrity psychologist Doree Lynn bought an expensive ring from a jeweler in Washington, D.C., which

included an emerald that cost $14,500. Several years later, the emerald fractured. Lynn took it to another
{"batch_upload": true, "file_type": ".pdf", "file_name": "Microeconomics3e.pdf", "file_size_mb": 26.99, "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "title": "Principles of Microeconomics 3e", "creationdate": "2022-12-07T14:15:44-06:00", "uploaded_via": "batch_uploader", "producer": "Prince 14.2 (www.princexml.com)", "total_pages": 597, "upload_timestamp": "2026-02-07T15:37:44.339247", "creator": "PDFMiner", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "moddate": "2022-12-07T14:23:05-06:00"}