1.3.4 Information Gaps

Question 1

What are information gaps ? and what is it also known as

Answer 1

This is when consumers or producers lack the information needed to make an informed decision.
It is also known as imperfect information

Question 2

How does having more information help consumers/producers ?

Answer 2

It helps close the information gaps

Question 3

What are the two types of information gaps ?

Answer 3

Incomplete and asymmetric information

Question 4

What is incomplete information ?

Answer 4

It is when someone does not have full information about the benefits or costs of their decisions

Question 5

What does incomplete information lead to ?

Answer 5

This leads to underconsumption or an overconsumption of the good which leads to a market failure

Question 6

How can incomplete info lead to overconsumption of goods ?

Answer 6

Consumers may not know about the long term costs of consuming a good.

Question 7

What is asymmetric information ?

Answer 7

This is when one party knows more than another party in a transaction

Question 8

What happens if info was symmetric ?

Answer 8

All parties knows as much as each other

Question 9

What does asymmetric info lead to ? And give examples

Answer 9

It can lead to a misallocation of resources. For example second hard cars or products sold on eBay.