2.9 Information failure Flashcards
The role of markets (13 cards)
What is information failure?
A lack of information, meaning consumers/producers make decisions that don’t maximise welfare
Examples of when information failure could occur
- Education: how useful would education be in the long run?
What is asymmetric information?
Information isn’t equally shared. Either the buyer/seller has more information than the other
Examples of when asymmetric information could occur
- Health care: dental surgeries that may not be needed
- Market for used cars: seller most likely has more information than the buyer e.g. on any problems with the car, its mileage etc.
What is a moral hazard?
A situation where a person has taken out insurance and is therefore prone to taking more risks
How would the full market info be shown on a diagram?
Basic supply and demand diagram where the buyer doesn’t know the full info but the demand curve shifts to the left when the buyer knows the full market information
What are merit goods?
Goods that are more beneficial than consumers may realise at time of conumption.
Examples of merit goods
- Education
- Health care
What are demerit goods?
Goods that are more harmful than consumers may realise.
Overconsumed in a free market
Examples of demerit goods
- Cigarettes
- Illegal goods
- Alocohol
Evaluate the consumption and production of merit goods
- Difficult to judge financial value
- Depends on individual
- Depends on quality of the good
The benefits a merit good can bring are better perceived by some groups in society than others
What does a demerit good diagram look like?
Just a negative consumption externality diagram (MSB shifts to the left (demand))
Evaluate the consumption and production of demerit goods
- Should the government bother getting involved
- Should consumers have free choice
- Will consumption of demerit goods affect everyone the same
- 3rd parties are still affected
