When two parties to a transaction have different amounts of information economists refer to this concept as:a.  ceteris paribus b.  circular flow of life. c.  asymmetric information

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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The correct answer to this is C.  This is a case of asymmetric information.

First of all, we know that this is not A or B.  The ceteris paribus assumption is the assumption that is typically made in economics that states that all variables other than the ones being studied will be constant.  We say, for example, that when price goes up, quantity demand will, ceteris paribus, go down.  The circular flow refers to the idea that all parts of an economy are connected to one another.  Neither of these has any connection to the amount of information two parties have.

This is a case of asymmetric information because that is defined as a case where the two sides have different amounts of information.  This tends to lead to market failures that must be remedied in some way.

 

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