1.3.4 - Information Gaps

Question 1

What Is Symmetric Information?

Answer 1

Buyers and sellers have the exactly the same level of information about a good or service.

Question 2

What Are The 2 Features Of Information Failure?

Answer 2

~ Imperfect information.

~ Asymmetric information.

Question 3

What Is Asymmetric Information?
(2 Points)

Answer 3

~ When one party has superior knowledge compared to another.

~ Distorts socially optimal prices and quantities in markets, resulting in an over-provision or under-provision of products.

Question 4

What Is Meant By A Lack Of Information?
(3 Points)

Answer 4

~ No information exists at all.

~ Leads to an over or under consumption, making consumers take irrational decisions.

~ E.g. Merit and de-merit goods.

Question 5

Describe Merit Goods
(5 Points)

Answer 5

~ Goods that are deemed to be more beneficial to consumers than they realise.

~ E.g. Healthcare, education and exercise.

~ There is a lot of imperfect information as a result of this, consumers may not fully understand the benefits of the goods.

~ Create positive externalities in consumption.

~ Under-consumed and produced.

Question 6

Describe De-Merit Goods
(5 Points)

Answer 6

~ Deemed more harmful to consumers than they realise.

~ Cigarettes, alcohol and gambling

~ There is a lot of imperfect information as a result of this, consumers may not fully understand the costs consuming the goods.

~ Create negative externalities in consumption.

~ Over consumed and produced.