How does imperfect information potentially lead to market failure?

Imperfect information can lead to market failure because a lack of information prevents buyers and sellers from making optimal decisions and using their resources to their fullest potential. If there is lack of information about the availability, quality, and pricing of goods and services, buyers and sellers will have difficulty making informed decisions. This lack of information can lead to overspending on low-quality products, or result in suppliers producing too much (or too little) of a certain good or product. Additionally, when consumers are unaware of their real options, they may face difficulties in identifying appropriate substitutes for their needs, leading to any number of inefficiencies in the market. Without perfect information, buyers and sellers in the market may be unable to discern the true value of goods, resulting in suboptimal outcomes.