Mention the two forms of market failures, associated with asymmetry of information

Sometimes, in a market, some individuals act in their own self-interest. Although this might be rational and justified to them, it does not produce an outcome that serves the interest of the group they are a part of. More often than not, these situations lead to market failure. This can be avoided if all the parties involved act in a similar interest that is good for everyone.

One form of market failure is adverse selection. This occurs when an individual fails to disclose all the information about their health risks during the sale of a policy. A situation like this might cause the insurance premiums for other customers to go up, causing withdrawals. This can cause a downward spiral of the business.

Another form of market failure is public goods. In this case, there is a lack of complete information on both sides. In this type of market failure, a producer can not limit the number of products produced to paying customers only. For instance, the government can not limit the number of users getting security to citizens paying taxes only. Additionally, regardless of how much a customer pays, they enjoy the same amount of protection from the military. This leads to a problem where some people will pay more than others for the same service.