1.3.4 - Information Gaps

Question 1

Where Do Information Gaps Exist?

Answer 1

In nearly all free markets and distort market outcomes resulting in market failure.

Question 2

What Is An Underlying Assumption About The Free Market?

Answer 2

That there is perfect information within the market.

Question 3

What Is Symmetric Information?
(2 Points)

Answer 3

~ Where buyers and sellers have exactly the same level of information about the good or service.
~ Perfect information.

Question 4

Why Is Symmetric Information A Problem?

Answer 4

It means that economic agents are unable to make an informed decision, then they suffer from an information gap.

Question 5

What Is Asymmetric Information?

Answer 5

Occurs when one party has superior knowledge compared to another about the good or service.

Question 6

What Does Asymmetric Information Do?

Answer 6

Distorts socially optimum prices and quantities in markets resulting in over-provision or under-provision of goods and services.

Question 7

How Do Information Gaps Lead To Market Failure?

Answer 7

There is a misallocation of resources because people do not buy things that maximises their welfare.