Information asymmetry happens when buyers and sellers have different levels of information, leading to adverse selection in the market. Adverse selection occurs when one party, either the buyer or the seller, has hidden information about the product and makes buying or selling decisions based on that information. For example, in the used car market, buyers cannot know everything about the cars and cannot fully trust them. Because of this, they often try to buy used cars at lower prices to evaluate their quality. To make buyers feel more confident, sellers might promise to repair the car free of charge if it breaks within a year after purchase, protecting themselves against adverse selection. A successful transaction depends on strategies that align with the market’s specific characteristics. - Joseph’s “just my thoughts”
In business, capital means business funds. A successful entrepreneur often says, "I started my business without any capital". It's partly true, but it's a lie. The entrepreneur just said that capital means only cash. However, all kinds of businesses need to be fundamentally business funds in any even not cash. The entrepreneur didn't count the founder's labor cost. No inputs, no outcomes. The uncounted labor costs are called "alternative costs" or "opportunity costs". This comes from comparative advantage. If the entrepreneur doesn't accept the uncounted labor cost as a debt, the entrepreneur is equivalent to losing the profit due to opportunity costs. Please always remember this. There is no free lunch in this world. - Joseph’s “just my thoughts”