When does information asymmetry occur between artisan and trader in handicrafts?

Correct answer: When the trader knows market price but the artisan does not know actual demand and price

Information asymmetry occurs when two people in a transaction do not possess the same important information. In handicrafts, a trader may know the current market price, customer demand, or likely resale value, while the artisan may know only the cost and effort of making the item. The trader can then use the information gap to negotiate a lower buying price. This can reduce the artisan’s income and bargaining power, especially when the artisan has few alternative buyers.

Option A is correct because it clearly describes unequal knowledge of market demand and price. If both parties have the same information, there is no such asymmetry. Direct selling can reduce the problem because the artisan communicates with the customer, although it does not automatically remove every information gap. A transparently written price also improves information equality. The key test is unequal access to relevant information during the transaction.