Information Gaps Flashcards
What is an information gap/ imperfect information?
A lack of information resulting in economic agents making decisions that do not maximise welfare
what is incomplete information?
When someone doesnt have full information about the benefits or costs of their decisions.
For example: Education
Incomplete information means people aren’t informed of benefits of education which mean people underconsume education meaning market failure because consumers dont consume enough of this good
How does government intervene in education to prevent the market failure caused by incomplete information
Regulation - e.g. legally requiring students to stay in education till age 18. Information provision - e.g. providing info on the benefits of education at the British Science Festival. Subsidies - e.g. subsidising tuition fees.
What is asymmetric information
situation in which some economic agents in a market have better information about market conditions than others; when information is unequally shared between two parties
How does government intervene in the cigarette market to prevent the market failure caused by incomplete information?
Regulation - e.g. legally banning public smoking. Information provision - e.g. showing adverts on the costs of smoking. Indirect taxes - e.g. specific taxes on cigarettes
What are some examples of underconsumption and over consumption
Underconsumption:
Education
Healthy foods
Gym
Over:
Drugs
Smoking
Junk food
What is symmetric information?
When all parties know as much as each other
How does asymmetric information lead to market failure?
Assymetric information you may spend your money on a good that isnt what you expected meaning you misallocated your resources leading to market failure.
