amount of information (one party knows much more than the other).

Many economic transactions occur in a situation of imperfect information, where either the buyer, the seller,

or both, are less than 100% certain about the qualities of what they are buying and selling. Also, one may

characterize the transaction as asymmetric information, in which one party has more information than the

other regarding the economic transaction. Let’s begin with some examples of how imperfect information

complicates transactions in goods, labor, and financial capital markets. The presence of imperfect information

can easily cause a decline in prices or quantities of products sold. However, buyers and sellers also have
incentives to create mechanisms that will allow them to make mutually beneficial transactions even in the face
of imperfect information.

If you are unclear about the difference between asymmetric information and imperfect information, read the

following Clear It Up feature.
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