1 - Market Failure - Info Gaps Flashcards
(8 cards)
1
Q
When does info failure occur?
A
When people have inaccurate or incomplete data and so make potentially wrong choices
2
Q
When do info gaps occur?
A
When buyer/seller doesn’t have access to it the info needed for them to make fully informed decision
- leads to misallocation
= market failure
3
Q
What’s asymmetric info?
A
Buyers and sellers have different amounts of info
4
Q
What’s adverse selection?
A
People taking out insurance are often those at highest risk
5
Q
What’s a moral hazard?
A
Being insured can make you more careless
6
Q
What’s the principal agent problem?
A
Goals of principals are different from the agents
- eg. Managers may have more info than shareholders
7
Q
Examples of info failure
A
- risks from using sun beds
- addiction to drugs
- complexity of pension schemes
- uncertain quality of 2nd hand goods
- knowledge of nutritional content of food
8
Q
Policies to address info gaps
A
- compulsory labelling
- improved nutritional info
- hard hitting advertising
- campaigns to raise risk awareness
- consumer protection laws
