Chapter 8: Information failure Flashcards Preview

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Flashcards in Chapter 8: Information failure Deck (16)
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1
Q

What needs to happen if markets are to be effective in guiding resources allocation?

A

It is important that economic decision makers receive full and accurate information about market conditions.

2
Q

What is known as ‘symmetric information’?

A

When all traders in a market have the same information about market conditions.

3
Q

What do consumers need information about?

A

Price and quantity.

4
Q

What is known as ‘asymmetric information’?

A

When not all traders have access to good information or some traders have more or better access to it than others.

5
Q

What type of information can be a source of market failure?

A

Asymmetric information.

6
Q

What causes under/over consumption of goods that have externalities?

A

Imperfect information (information failure)

7
Q

When does information failure occur?

A

When people have inaccurate, incomplete, uncertain or misunderstood data so they may make the ‘wrong’ choices.

8
Q

Give an example of when you under-estimate the private benefit from consuming a particular service.

A

Consumers well underestimate the long term private benefits from investing time and money into extra education.

9
Q

Give an example of when information failure occurs as a result of misunderstanding the true costs and benefits of a product.

A

The private and social benefits from higher education when there are so many universities and courses to choose from.

10
Q

Give an example of when information failure occurs as a result of uncertainty about costs and benefits.

A

Some people will over-consume demerit goods such as alcohol and tobacco yet they might not be fully aware of the health problems it might cause and the associated costs.

11
Q

How does the government try to fill in information gaps?

A

Through legislation and advertising.

12
Q

Give an example of when information failure occurs as a result of complex information.

A

Choosing between makes of computers requires specialist knowledge of hardware.

13
Q

Give an example of when information failure occurs as a result of inaccurate or misleading information.

A

Persuasive advertising may ‘oversell’ the benefits of a product leading to a higher demand and consumption than is optimal.

14
Q

Give an example of when information failure occurs as a result of addiction.

A

Drug addicts may be unable to stop consumption of harmful substances.

15
Q

Give an example of asymmetric information occurring.

A

When a consumer is filling in the forms upon which an insurance company will base the price of a policy on, the consumer could choose to leave out information that they may feel would make a policy more expensive.

16
Q

Why does asymmetric information lead to inefficiencies and market failure?

A

It can distort people’s incentives to buy and sell goods and services at the right price.