Theme 1.3 - Information Failure

Question 1

What is information failure?

Answer 1

Individuals have imperfect information about their private costs + benefits

Question 2

Why is information failure an example of market failure?

Answer 2

Wrong quality may be purchased
Wrong price may be paid
All due to lack of information

Question 3

How can information failure be corrected?

Answer 3

Force firms to provide information
New legislation (E.g., consumer protection)
Force data publication
Establish regulators + industry standards

Question 4

What are the potential problems with information provision?

Answer 4

No guarantee consumer will follow
May be misunderstood
Expensive to provide
Information constantly changing
May take years to change behaviour

Question 5

What are the 2 types of information?

Answer 5

Symmetric - Balance of knowledge
Asymmetric - One party more knowledgeable

Question 6

Which form of information is most prominent + why?

Answer 6

Asymmetric
Producer generally knows more then consumer
Producer also makes effort to seem knowledgeable to encourage sale