Information gaps Flashcards
What is meant by information failure?
Information failure occurs when people have inaccurate or incomplete data and so make potentially ‘wrong’ choices / decisions
What is perfect information?
Consumers and producers have full knowledge about prices, benefits and costs of the goods and services available.
What are the 4 main causes of information failure?
1) Long-term consequences
2) Complexity
3) Unbalanced knowledge
4) Price information
What are long term consequences?
Information gaps about long term benefits of costs of consuming a product e.g. consumption of legal highs
What is complexity?
Information failure when a product is highly complex e.g. understanding the best pension product to buy (if at all!)
What is unbalanced knowledge?
Information failure when a product is highly complex e.g. understanding the best pension product to buy (if at all!)
What is price information?
When consumers are unable to quickly / cheaply find sufficient information on the best prices for different products.
What is asymmetric information? Give an example
Asymmetric information is when there is an imbalance in information between buyer and seller which can distort choices e.g. Doctors have superior knowledge about drugs and treatments
What are the two aspects of asymmetric information?
1) Moral hazards
2) Asymmetric information
What are moral hazards?
Moral hazard occurs when insured consumers are likely to take
greater risks, knowing that a claim will be paid for by their cover
The consumer knows more about his/her intended actions than the producer (insurer)
What are adverse selections?
Health insurance: those most likely to purchase health insurance
are those who are most likely to use it, i.e.
smokers/drinkers/those with underlying health issues
The insurance company knows this and so raises the average
price of insurance cover
This prices healthy consumers out of the market, meaning that
only high risk individuals gain insurance – a market failure
Government action can improve information to help consumers and producers value the actual cost and/or benefit of a good or service. What are some examples?
Compulsory labelling on products (cigarettes)
Improved nutritional information (labelling
systems) on food & drinks
Hard-hitting anti-speeding advertising to
reduce the number of road accidents
Campaigns to raise awareness of the risks of
drink-driving / drug abuse
Campaigns on dangers of gambling addiction
Performance league tables for schools
Consumer protection laws e.g. right for
refunds of faulty goods
