Does the demand for bad quality products increase when there is information asymmetry? Situation 1 In a situation where we have two markets one with good quality products and the other with bad quality products, if we are in a situation where the buyer knows which is the good product and which is the bad we can say that the demand for good quality products is superior to the bad quality ones.

Situation 2 Now if we go from situation 1 to situation 2 where the buyer does not know which is the good or the bad product we can say that the demand for good quality products decreases since the buyer is willing to pay less because he does not kbow if what he is buying is a good product.

Now what I dont understand is why do we say that the demand for bad quality products will increase when the demand for good quality products decreases?

Is it just because the decrease in demand for the good products is the same quantity as the increase in demand of bad product since the two products are the same type but not quality? Or is there another explanation for this ?
In the second case (information asymmetry) there is only a single market. This may be the market for the product with unknown quality or in case of adverse selection it may be a market for the bad quality product alone. Assuming there is no adverse selection the reservation price of a consumer w.r.t. the unknown good is the expected value of his reservation prices from the full information case. Thus it is a weighted average and will fall between the reservation prices of the good quality product and the bad quality product. Since this is true for all consumers, the demand function adjusts in the way you described.

What happens exactly (number of products sold) depends on the market structure, whether the seller of the goods is a monopoly or there is supply-side competition.