information gaps

Question 1

what are information gaps.

Answer 1

when one oe more parties in an economic transaction have better or more information than the other this leads to ineficient market outcomes which is market fsilure.

Question 2

why it matters

Answer 2

markets only work efficiently if all agents have perfect iinfomation. if they dont it leads to sub optimal decision making andultimately resulting in a missallocation of resources

Question 3

assymetric information

Answer 3

one party knows more than the other i.e the car market

Question 3

we have two types of information gaps what are they called

Answer 3

assymetrical information and perfect information

Question 3

how can information gaps cause market failurearket faoilure

Answer 3

moral hazard- one party takesmore risks as they dont bear the full consequences ( car insurances)
under consumption(merit goods) over consumption (demerit goods).

Question 4

imperfect information

Answer 4

both parties lack full knowledge but neither have a clear advantage.

Question 5

how can government interention help stop market fsilure

Answer 5

regulation and provisions of information.