In a market with asymmetric information,gains from trade occur if ________.
A) the value of a good to a seller is greater than its value to a buyer
B) the value of a good to a buyer is greater than its value to a seller
C) the variable cost of producing a good is zero
D) the opportunity cost of consuming a good is zero

Question

Quizplus · Accepted Answer

In a market with asymmetric information, buyers and sellers may have different levels of information about the quality or characteristics of a good. As a result, the value of a good to a buyer may be greater than its value to a seller, or vice versa. Gains from trade occur when a buyer is willing to pay a higher price for a good than the seller's cost of producing it, and when the seller is willing to accept a lower price than the buyer's value for the good. Therefore, in this case, the correct answer is B.

In a Market with Asymmetric Information,gains from Trade Occur If