1.3.4 Information Gaps Flashcards
what does rational behaviour assume
full information
what constitutes full information
- people use all the information available
- people try to maximise total satisfaction
- people make independent choices
- consumers have stable, consistent preferences
what happens when there is imperfect information
market failure can occur
what are information gaps
occur where consumers, producers or the government have insufficient knowledge to make rational economic decisions
why do information gaps arise
due to inaccurate, incomplete, uncertain or misunderstood data and so economic agents make potentially wrong choices in markets
what is the consequence of information gaps
their decisions may not maximise utility, profit or social welfare respectively
give two examples of imperfect information
- risks from using tanning salons
- uncertain quality of secondhand products
define symmetric information
where consumers and producers have access to the same information about a good or service in a market
define asymmetric information
where consumers and producers have unequal access to information about a good or service in a market
give interventions to improve information
- health warnings
- nutritional labelling
- consumer protection laws
- compulsion (e.g vaccines)
what is the significance of information gaps
- choice overload can distort our decisions
- fake news and misleading advertising damage consumer sovereignty and lead to a misallocation of resources
- information failure can affect equity
